Problems

Living History Travel Guides, Inc. publishes travel books focusing on historical sites in the United States and Canada. The firms condensed financial statements for 20x0 are as follows:

Living History Travel Guides, Inc.

Income Statement

For the Year Ended December 31, 20x0

(in thousands)

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,190 Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .690 Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 500 Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .250 Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 250 Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. $ 200 Income-tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100

Living History Travel Guides, Inc.

Balance Sheet

December 31, 20x0

(in thousands)

Assets

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100

Marketable securities . . . . . . . . . . . . . . . . . . 150

Accounts receivable (net of $15 allowance for uncollectible accounts) . . . . . 200

Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . 400

Prepaid expenses . . . . . . . . . . . . . . . . . . . . . 50

Property, plant, and equipment (net of $220 accumulated depreciation) . . . . . . . . 530

Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

Total assets . . . . . . . . . . . . . . . . . . . . . . . $1,500

Liabilities and Stockholders Equity

Accounts payable . . . . . . . . . . . . . . . . . . . . . $ 120

Short-term note payable . . . . . . . . . . . . . . . . 180

Accrued liabilities . . . . . . . . . . . . . . . . . . . . . 100

Bonds payable . . . . . . . . . . . . . . . . . . . . . . . 400

Preferred stock . . . . . . . . . . . . . . . . . . . . . . . 200

Common stock . . . . . . . . . . . . . . . . . . . . . . . 200

Additional paid-in capital . . . . . . . . . . . . . . . . 100

Retained earnings . . . . . . . . . . . . . . . . . . . . . 200

Total liabilities and stockholders equity . . . $1,500

Additional Information

Gross accounts receivable amounted to $200,000, and the allowance for uncollectible accounts was $20,000 as of January 1, 20x0.

Total assets amounted to $1,300,000, and common stockholders equity amounted to $300,000 on January 1, 20x0.

The liquidation value of the preferred stock is equal to par value. Preferred dividends are paid at the rate of 8 percent.

The companys income tax rate was 50 percent.

Required:

Compute the following ratios.

1-Current ratio on December 31, 20x0.

2-Debt-equity ratio on December 31, 20x0.

3-Return on assets for 20x0.

4-Return on equity for 20x0.

5-Interest coverage for 20x0.

6-Average collection period in 20x0. (Assume that all sales were on account.)