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E13.19 (LO 4) (Ratio Computations and Effect of Transactions) Presented below is information related to Carver Inc. Carver Inc. Balance Sheet December 31, 2020 Cash

E13.19 (LO 4) (Ratio Computations and Effect of Transactions) Presented below is information related to Carver Inc.

Carver Inc. Balance Sheet December 31, 2020
Cash

$ 45,000

Notes payable (short-term)

$ 50,000

Receivables

$110,000

Accounts payable

32,000

Less: Allowance

15,000

95,000

Accrued liabilities

5,000

Inventory

170,000

Common stock (par $5)

260,000

Prepaid insurance

8,000

Retained earnings

141,000

Land

20,000

Equipment (net)

150,000

$488,000

$488,000

Carver Inc. Income Statement For the Year Ended December 31, 2020
Sales revenue

$1,400,000

Cost of goods sold
Inventory, Jan. 1, 2020

$200,000

Purchases

790,000

Cost of goods available for sale

990,000

Inventory, Dec. 31, 2020

(170,000)

Cost of goods sold

820,000

Gross profit on sales

580,000

Operating expenses

170,000

Net income

$410,000

Instructions

a. Compute the following ratios or relationships of Carver Inc. Assume that the ending account balances are representative unless the information provided indicates differently.

1. Current ratio.

2. Inventory turnover.

3. Accounts receivable turnover.

4. Earnings per share.

5. Profit margin on sales.

6. Return on assets on December 31, 2020.

b. Indicate for each of the following transactions whether the transaction would improve, weaken, or have no effect on the current ratio of Carver Inc. at December 31, 2020.

1. Write off an uncollectible account receivable, $2,200.

2. Purchase additional capital stock for cash.

3. Pay $40,000 on notes payable (short-term).

4. Collect $23,000 on accounts receivable.

5. Buy equipment on account.

6. Give an existing creditor a short-term note in settlement of account.

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