June2017SupportPackage.pdf

Inventory turnover ratio cost of goods sold average

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Inventory turnover ratio = Cost of goods sold ÷ Average inventory = \$140,000 ÷ [(\$30,000 + \$26,000) ÷ 2] = \$140,000 ÷ \$28,000 = 5.0 times 39. Correct answer c. Globetrade’s current ratio would decrease as a result of the change to LIFO because the value of ending inventory would be lower thus decreasing the firm’s current assets. Globetrade’s inventory turnover ratio would increase as a result of the change to LIFO because the cost of goods sold would increase. 40. Correct answer b. Lancaster’s accounts receivable turnover ratio is 10.15 as shown below. Accts. receivable turnover = Credit sales ÷ Average accounts receivable = [\$1,700,000 x (1-.06)] ÷ [(\$168,000 + \$147,000) ÷ 2] = \$1,598,000 ÷ \$157,500 = 10.15 41. Correct answer d.Cornwall’s days’ sales in accounts receivable is 23 as shown below. Days’ sales in Accts. Rec. = Average accounts receivable ÷ (Credit sales ÷ 360) = [(\$68,000 + \$47,000) ÷ 2] ÷ (\$900,000 ÷ 360) = \$57,500 ÷ \$2,500 = 23 days 42. Correct answer a. Both measures have increased because both sales and cost of goods sold have increased while average accounts receivable and average inventory have remained the same.

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282 43. Correct answer c. Caper’s fixed asset turnover is 2.3 times calculated as follows. Fixed asset turnover = Sales ÷ Average net property, plant, & equipment = \$3,000,000 ÷ \$1,300,000 = 2.3 times 44. Correct answer b. The accounts payable turnover is 7.0 times as shown below. Accounts payable turnover = Credit purchases ÷ Average accounts payable = \$24,500* ÷ [(\$3,320 + \$3,680) ÷ 2] = \$24,500 ÷ \$3,500 = 7.0 times *COGS used as credit purchases 45. Correct answer c. The only measure not affected by the purchase of its own common stock is Douglas’ net profit margin. Both the debt/equity ratio and the earnings per share are affected by the number of outstanding shares of common stock while the current ratio is affected by the amount of cash held. 46. Correct answer a. Beechwood’s return on shareholders’ equity is 19.2% as shown below. ROE = Net income ÷ Average equity = \$96,000 ÷ [(\$300,000 + \$12,000 + \$155,000 + \$300,000 +\$28,000 + \$206,000) ÷ 2] = \$96,000 ÷ \$496,000 = 19.2% 47. Correct answer b. Moreland’s total asset turnover is 1.37 as calculated below. Total asset turnover = Sales ÷ Average total assets = \$900,000 ÷ [(\$48,000 + \$42,000 + \$68,000 + \$125,000 + \$325,000 + \$62,000 + \$35,000 + \$47,000 + \$138,000 + \$424,000) ÷ 2] = \$900,000 ÷ \$657,000 = 1.37 48. Correct answer b. Interstate’s additional investment in operating assets will increase the total value of the firm’s net property, plant, and equipment and will, therefore, decrease the operating asset turnover and the return on operating assets. The firm’s operating income margin will be unaffected by this investment. 49. Correct answer b. If Colonie increases its inventory turnover, the value of inventory will likely be lower which will lower the firm’s total assets. Decreasing the use of equity financing will stabilize (or reduce) the amount of equity outstanding. Both lower total assets and lower total equity would result in an increase in Colonie’s return on equity.
283 50. Correct answer a. Merit’s book value per share is \$1.88 as calculated below.

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