Kisselburg Corporation has provided the following financial data:Balance SheetDecember 31, Year 2 and Year 1AssetsYear 2Year 1Current assets: Cash$243,000 $180,000 Accounts receivable, net 123,000 120,000 Inventory 106,000 110,000 Prepaid expenses 41,000 50,000 Total current assets 513,000 460,000 Plant and equipment, net 663,000 700,000 Total assets$ 1,176,000 $ 1,160,000 Liabilities and Stockholders' Equity Current liabilities: Accounts payable$96,000 $110,000 Accrued liabilities 44,000 50,000 Notes payable, short term 93,000 90,000 Total current liabilities 233,000 250,000 Bonds payable 260,000 260,000 Total liabilities 493,000 510,000 Stockholders'
equity: Common stock, $2 par value 160,000 160,000 Additional paid-in capital 50,000 50,000 Retained earnings 473,000 440,000 Total stockholders' equity 683,000 650,000 Total liabilities & stockholders' equity$ 1,176,000 $ 1,160,000 Income StatementFor the Year Ended December 31, Year 2Sales (all on account)$1,360,000 Cost of goods sold 800,000 Gross margin 560,000 Operating expenses 482,077 Net operating income 77,923 Interest expense 21,000 Net income before taxes 56,923 Income taxes (35%) 19,923 Net income$ 37,000 Dividends on common stock during Year 2 totaled $4,000. The market price of common stock at the end of Year 2 was $5.75 per share.Required:a. What is the company's working capital at the end of Year 2?b. What is the company's current ratio at the end of Year 2?c. What is the company's acid-test (quick) ratio at the end of Year 2?d. What is the company's accounts receivable turnover for Year 2?e. What is the company's average collection period for Year 2?f. What is the company's inventory turnover for Year 2?g. What is the company's average sale period for Year 2?h. What is the company's operating cycle for Year 2?i. What is the company's total asset turnover for Year 2?j. What is the company's times interest earned ratio for Year 2?k. What is the company's debt-to-equity ratio at the end of Year 2?l. What is the company's equity multiplier at the end of Year 2?m. What is the company's net profit margin percentage for Year 2?n. What is the company's gross margin percentage for Year 2?o. What is the company's return on total assets for Year 2?p. What is the company's return on equity for Year 2?q. What is the company's earnings per share for Year 2?r. What is the company's price-earnings ratio for Year 2?s. What is the company's dividend payout ratio for Year 2?t. What is the company's dividend yield ratio for Year 2?u. What is the company's book value per share at the end of Year 2?
What will be an ideal response?
| a. | Working capital = Current assets - Current liabilities |
| b. | Current ratio = Current assets ÷ Current liabilities |
| c. | Acid-test (quick) ratio = Quick assets* ÷ Current liabilities |
*Quick assets = Cash + Marketable securities + Current receivables
= $243,000 + $0 + $123,000 = $366,000
| d. | Accounts receivable turnover = Sales on account ÷ Average accounts receivable* |
*Average accounts receivable = ($123,000 + $120,000) ÷ 2 = $121,500
| e. | Average collection period = 365 days ÷ Accounts receivable turnover |
| f. | Inventory turnover = Cost of goods sold ÷ Average inventory* |
*Average inventory = ($106,000 + $110,000) ÷ 2 = $108,000
| g. | Average sale period = 365 days ÷ Inventory turnover |
| h. | Operating cycle = Average sale period + Average collection period |
| i. | Total asset turnover = Sales ÷ Average total assets* |
*Average total assets = ($1,176,000 + $1,160,000) ÷ 2 = $1,168,000
| j. | Times interest earned ratio = Earnings before interest expense and income taxes ÷ |
= $77,923 ÷ $21,000 = 3.71 (rounded)
| k. | Debt-to-equity ratio = Total liabilities ÷ Stockholders' equity |
| l. | Equity multiplier = Average total assets* ÷ Average stockholders' equity* |
*Average total assets = ($1,176,000 + $1,160,000) ÷ 2 = $1,168,000
**Average stockholders' equity = ($683,000 + $650,000) ÷ 2 = $666,500
| m. | Net profit margin percentage = Net income ÷ Sales |
| n. | Gross margin percentage = Gross margin ÷ Sales |
| o. | Return on total assets = Adjusted net income* ÷ Average total assets** |
*Adjusted net income = Net income + [Interest expense × (1 - Tax rate)]
= $37,000 + [$21,000 × (1 - 0.35)] = $50,650
**Average total assets = ($1,176,000 + $1,160,000) ÷ 2 = $1,168,000
| p. | Return on equity = Net income ÷ Average stockholders' equity* |
*Average stockholders' equity = ($683,000 + $650,000) ÷ 2 = $666,500
| q. | Earnings per share = Net Income ÷ Average number of common shares outstanding* |
*Number of common shares outstanding = Common stock ÷ Par value
= $160,000 ÷ $2 per share = 80,000 shares
| r. | Price-earnings ratio = Market price per share ÷ Earnings per share |
| s. | Dividend payout ratio = Dividends per share* ÷ Earnings per share |
*Dividends per share = Common dividends ÷ Common shares (see above)
= $4,000 ÷ 80,000 shares = $0.05 per share (rounded)
| t. | Dividend yield ratio = Dividends per share* ÷ Market price per share |
*Dividends per share = Common dividends ÷ Common shares (see above)
= $4,000 ÷ 80,000 shares = $0.05 per share (rounded)
| u. | Book value per share = Common stockholders' equity ÷ Number of common shares |
= $683,000 ÷ 80,000 shares = $8.54 per share (rounded)
*Number of common shares outstanding = Common stock ÷ Par value
= $160,000 ÷ $2 per share = 80,000 shares
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