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Chapter 2: 34BP_a (page 86)

We are given the following information for the Pettit Corporation.

Sales (credit)

$3,549,000

Cash

179,000

Inventory

911,000

Current liabilities

788,000

Assets turnover

1.40 times

Current ratio

2.95 times

Debt-to-assets ratio

40%

Receivables turnover

7 times

Current assets are composed of cash, marketable securities, accounts receivable, and inventory. Calculate the following balance sheet items.

a. Accounts receivable.

Short Answer

Expert verified

Accounts receivables of the company are $507,000.

Step by step solution

01

Meaning of accounts receivable

Account receivables are treated as the current assets of the company. It is the balance due to the firm for the credit sale of goods and services.

02

Account receivable

Accountsreceivables=NetcreditsalesAccountreceivableturnoverratio=$3,549,0007=$507,000

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Most popular questions from this chapter

Inflation can have significant effects on income statements and balance sheets, and therefore on the calculation of ratios. Discuss the possible impact of inflation on the following ratios, and explain the direction of the impact based on your assumptions. (LO3-5)

d. Debt-to-assets ratio

The Lancaster Corporation’s income statement is given below.

a. What is the times-interest-earned ratio?

Lancaster corporation

Sales

\(246,000

Cost of goods sold

122,000

Gross profit

\)124,000

Fixed charges (other than interest)

27,500

Income before interest and taxes

\(96,500

Interest

21,800

Income before taxes

\)74,700

Taxes (35%)

26,145

Income after taxes

$48,555

Comment on why inflation may restrict the usefulness of the balance sheet as normally presented.

Assume the following data for Cable Corporation and Multi-Media Inc.

Capable corporation

Muli-media inc

Net income

\(31,200

\)140,000

Sales

317,000

2,700,000

Total assets

402,000

965,000

Total debts

163,000

542,000

Stockholder’s equity

239,000

423,000

b. Compute the following additional ratios for both firms:

Net income/Sales

Net income/Total assets

Sales/Total assets

Debt/Total assets

Jerry Rice and Grain Stores has \(4,780,000 in yearly sales. The firm earns 4.5 percent on each dollar of sales and turns over its assets 2.7 times per year. It has \)123,000 in current liabilities and $349,000 in long-term liabilities.

b. If the asset base remains the same as computed in part a, but total asset

turnover goes up to 3, what will be the new return on stockholders’ equity?Assume that the profit margin stays the same as do current and long-term

liabilities.
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