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Required information Skip to question [The following information applies to the questions displayed below.] Summary information from the financial statements of two companies competing in

Required information

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[The following information applies to the questions displayed below.]

Summary information from the financial statements of two companies competing in the same industry follows.

Barco Company Kyan Company Barco Company Kyan Company
Data from the current year-end balance sheets Data from the current years income statement
Assets Sales $ 790,000 $ 896,200
Cash $ 21,000 $ 37,000 Cost of goods sold 585,100 642,500
Accounts receivable, net 36,400 57,400 Interest expense 8,400 19,000
Merchandise inventory 84,440 130,500 Income tax expense 15,185 24,741
Prepaid expenses 6,100 7,300 Net income 181,315 209,959
Plant assets, net 360,000 306,400 Basic earnings per share 4.77 4.86
Total assets $ 507,940 $ 538,600 Cash dividends per share 3.77 3.93
Liabilities and Equity Beginning-of-year balance sheet data
Current liabilities $ 67,340 $ 95,300 Accounts receivable, net $ 26,800 $ 57,200
Long-term notes payable 83,800 107,000 Merchandise inventory 59,600 115,400
Common stock, $5 par value 190,000 216,000 Total assets 448,000 372,500
Retained earnings 166,800 120,300 Common stock, $5 par value 190,000 216,000
Total liabilities and equity $ 507,940 $ 538,600 Retained earnings 128,745 80,117

Required:

1a. For both companies compute the (a) current ratio, (b) acid-test ratio, (c) accounts receivable turnover, (d) inventory turnover, (e) days sales in inventory, and (f) days sales uncollected.

Note: Do not round intermediate calculations.

1b. Identify the company you consider to be the better short-term credit risk.

Complete this question by entering your answers in the tabs below.

  • 1A Current Ratio
  • 1A Acid Test Ratio
  • 1A Acct Rec Turn
  • 1A Invent Turnover
  • 1A Days Sal in Inv
  • 1A Days Sal Uncol
  • 1B short term

For both companies compute the current ratio.

(a) Current Ratio
Company Numerator: / Denominator: = Current Ratio
Current assets / Net sales = Current ratio
Barco $507,940 / $61,340 = 8.3 to 1
Kyan $538,600 / = 0 to 1

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