= 35.65 days
1
$899 = $328,000 ÷ 365 days
2
$1,178 = $430,000 ÷ 365 days
b. The inventory position of the business has deteriorated. The inventory turno-
ver has decreased, while the number of days’ sales in inventory has in-
creased. The sales volume has declined faster than the inventory has de-
clined, thus resulting in the deteriorating inventory position.
Ex. 17–12
1
2
783
Ex. 17–13
a. Ratio of liabilities to stockholders’ equity:
Total liabilities
Total stockholders' equity
Dec. 31, 2006:
$2,500,000
$1,350,000
= 0.54
Dec. 31, 2005:
$2,200,000
$1,540,000
= 0.70
b.
Number of times bond
interest charges were earned:
expense
Interest
expense
Interest
+
tax
before
Income
Dec. 31, 2006:
$96,000
*
000
,
$96
$528,000
+
= 6.50
Dec. 31, 2005:
$112,000
*
*
$112,000
$336,000
+
= 4.0
*$1,200,000 × 8% = $96,000
**$1,400,000 × 8% = $112,000
c. Both the ratio of liabilities to stockholders’ equity and the number of times
bond interest charges were earned have improved significantly from 2005 to
2006. These results are the combined result of a larger income before taxes
and lower serial bonds payable in the year 2006 compared to 2005.
Ex. 17–14
+
