FINANCIAL RATIOS Based on the financial statements, shown on pages 603-604, for McDonald Carpeting Co. (income statement, statement of owner's equity, and balance sheet), prepare the following financial ratios. All sales are credit sales. The balance of Accounts Receivable on January 1, 20-, was 56,800. 1. Working capital 2. Current ratio 3. Quick ratio 4. Return on owner's equity 5. Accounts receivable turnover and the average number of days required to collect receivables 6. Inventory turnover and the average number of days required to sell inventory $122.800 1,100 $121,700 $ 19,300 59,000 $78,300 16,700 McDonald Carpeting Co. Income Statement For Year Ended December 31, 20- Revenue from sales: Sales Less sales returns and allowances Net sales Cost of goods sold Merchandise Inventory, January 1, 26- $18.000 Estimated Returns Inventory, January 1, 20- 1.300 Purchases 562.800 Less: Purchases returns and allowances 52.800 Purchases discounts 1941 44 Net purchases 558,056 Add freight-in 944 Cost of goods purchased Goods available for sale Less: Merchandise inventory, December 31,20 516,000 Estimated returns inventory, December 31, 20- Cost of goods sold Gross profit Operating expenses: Wages expense Advertising expense Supplies expense Phone expense Utilities expense Insurance expense Depreciation expense-building Depreciation expense-equipment Miscellaneous expense Total operating expenses Income from operations Other revenues: Interest revenue Other expenses Interest expense Net Income 61,600 $ 60,100 $ 18,000 980 320 1.200 8,000 800 3.500 2.500 200 35,500 $ 24,000 $ 2800 2.100 700 5 25,300 McDonald Carpeting Co. Statement of Owner's Equity For Year Ended December 31, 20- $52,000 C.S. McDonald, capital, January 1, 20- Net income for the year Less withdrawals for the year Increase in capital C.S. McDonald, capital, December 31, 20-- $25,300 10,400 14,900 566,900 McDonald Carpeting Co. Balance Sheet December 31, 20- $10,400 8,900 $16,000 700 16,700 1,200 700 $37,900 $42,000 $60,000 18,000 $22.000 6,200 15,800 Assets Current assets: Cash Accounts receivable Merchandise inventory, December 31, 20-- Estimated returns inventory, December 31, 20-- Supplies Prepaid insurance Total current assets Property, plant, and equipment: Building Less accumulated depreciation--building Equipment Less accumulated depreciation equipment Total property, plant, and equipment Total assets Liabilities Current liabilities: Accounts payable Customer refunds payable Wages payable Sales tax payable Mortgage payable (current portion) Total current liabilities Long-term liabilities: Mortgage payable Less current portion Total liabilities Owner's Equity C. S. McDonald, capital Total liabilities and owner's equity 57,800 $95,700 $ 7,500 900 300 1,000 600 $10,300 $19,100 600 18,500 $28,800 66,900 $95,700
