Question
Platinum Corporation belongs to the rubber tire trading industry. Its most recent balance sheet and income statement appear below: Statement of Financial Position December 31,
Platinum Corporation belongs to the rubber tire trading industry. Its most recent balance sheet and income statement appear below:
Statement of Financial Position
December 31, Year 2 and Year 1
(in thousands of dollars)
Year 2 Year 1
Assets
Current assets:
Cash $30 $110
Accounts receivable 210 260
Inventory 190 170
Prepaid expenses 70 70
Total current assets 500 610
Plant and equipment, net 810 740
Total assets $1,310 $1,350
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $140 $150
Accrued liabilities 30 30
Notes payable, short term 40 40
Total current liabilities 210 220
Bonds payable 190 240
Total liabilities 400 460
Stockholders' equity:
Preferred stock, $100 par value, 5% 100 100
Common stock, $2 par value 400 400
Additional paid-in capital-common stock 130 130
Retained earnings 280 260
Total stockholders' equity 910 890
Total liabilities & stockholders' equity $1,310 $1,350
Income Statement
For the Year Ended December 31, Year 2
(in thousands of dollars)
Sales (all on account) $1,260
Cost of goods sold 770
Gross margin 490
Selling and administrative expense 400
Net operating income 90
Interest expense 26
Net income before taxes 64
Income taxes (30%) 19
Net income $45
Required:
A. Compute the following for Year 2:
a. Working capital.
b. Current ratio.
c. Acid-test ratio.
d. Accounts receivable turnover. e. Average collection period.
f. Inventory turnover.
g. Average sale period
B. What can you say about the company's short-term liquidity?
C. If the industry average in terms of collection period is 45 days, and inventory turnover is 6 times, how is the company performing compared to the industry?
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