Exercise 15-6 Selected Financial Ratios [LO3, LO4]

Recent financial statements for Madison Company follow:

Madison Company Balance Sheet June 30
Assets
Current assets:
Cash				$	21,000
Accounts receivable, net					160,000
Merchandise inventory					300,000
Prepaid expenses					9,000
Total current assets					490,000
Plant and equipment, net					810,000
Total assets				$	1,300,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities				$	200,000
Bonds payable, 10%					300,000
Total liabilities					500,000
Stockholders equity:
Common stock, $5 par value	$	100,000
Retained earnings		700,000
Total stockholders equity					800,000
Total liabilities and stockholders' equity				$	1,300,000

Madison Company Income Statement For the Year Ended June 30
Sales	$	2,100,000
Cost of goods sold		1,260,000
Gross margin		840,000
Selling and administrative expenses		660,000
Net operating income		180,000
Interest expense		30,000
Net income before taxes		150,000
Income taxes		45,000
Net income	$	105,000

Account balances at the beginning of the companys fiscal year were: accounts receivable, $140,000; and inventory, $260,000. All sales were on account.

1)Average Collection Period

2)Average Sale Period