Ram Corporation purchased a new truck on January 1, 2020 for $50,000. The truck is expected to last five years with a residual value of $10,000. Using straight-line depreciation, show the effect on the income statement and balance sheet of this transaction over the next five years.

Income statement

2020 2021 2022 2023 2024

Depreciation expense $8000 $8000 $8000 $8000 $8000

Balance Sheet

2020 2021 2022 2023 2024

Equipment $ $ $ $ $

Less: accumulated

Depreciation ( ) ( ) ( ) ( ) ( )

Book value $ $ $ $ $

Part II Chapter 8

Company A Company B Company C

Days sales in receivables 8.3 days 39.9 days 60.3 days

Days sales in inventory 2.3 days 45.8 days 95.8 days

Debt/equity ratio 34.8% 107.5% 62.3%

Times interest earned 14.5 times 7.8 times 4.5 times

Gross profit margin 37% 70% 20%

Price/earnings ratio 15 3 18

Bold the correct answer in each of the questions below.

1) Refer to the days sales in inventory. If one of the companies above is McDonald's, one is Apple, and one is BMW Auto Sales, which is likely BMW?

A B C

2) Which company is best able to meet its interest obligations?

A B C

3) If one of the companies above sells primarily on net 45 day sales terms with no discount offered for early payment, which is it likely to be?

A B C

4) Assume one company is McDonald's, one is Wal-Mart, and the other is a high end jeweler, which is likely the jeweler?

A B C

5) Which company has the least percentage of assets financed by owners?

A B C

6) Which company apparently has investors worried about its future?

A B C