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 | $ | 800,000 | | $ | 921,200 | |
| Cash | $ | 18,000 | | $ | 32,000 | | | Cost of goods sold | | 588,100 | | | 634,500 | |
| Accounts receivable, net | | 38,400 | | | 52,400 | | | Interest expense | | 7,800 | | | 11,000 | |
| Merchandise inventory | | 84,740 | | | 142,500 | | | Income tax expense | | 15,377 | | | 25,432 | |
| Prepaid expenses | | 6,000 | | | 7,550 | | | Net income | | 188,723 | | | 250,268 | |
| Plant assets, net | | 350,000 | | | 311,400 | | | Basic earnings per share | | 4.97 | | | 5.54 | |
| Total assets | $ | 497,140 | | $ | 545,850 | | | Cash dividends per share | | 3.71 | | | 4.00 | |
| | | | | | | | | |
| Liabilities and Equity | | | | | | | | Beginning-of-year balance sheet data | |
| Current liabilities | $ | 71,340 | | $ | 98,300 | | | Accounts receivable, net | $ | 31,800 | | $ | 54,200 | |
| Long-term notes payable | | 78,800 | | | 113,000 | | | Merchandise inventory | | 55,600 | | | 109,400 | |
| Common stock, $5 par value | | 190,000 | | | 226,000 | | | Total assets | | 408,000 | | | 372,500 | |
| Retained earnings | | 157,000 | | | 108,550 | | | Common stock, $5 par value | | 190,000 | | | 226,000 | |
| Total liabilities and equity | $ | 497,140 | | $ | 545,850 | | | Retained earnings | | 109,257 | | | 39,082 | |
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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. (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
ALL BLANK BOXES MUST BE ANSWERED
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| | | (a) | Current Ratio | | Company | Choose Numerator: | / | Choose Denominator: | = | Current Ratio | | | Current assets | / | Current liabilities | = | Current ratio | | Barco | | / | | = | 0 | to 1 | | Kyan | | | | | | | |
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| | | (b) | | Acid-Test Ratio | | Company | | Choose Numerator: | | | Choose Denominator: | = | Acid-Test Ratio | | | + | + | | / | | = | Acid-test ratio | | Barco | + | + | | / | | = | 0 | to 1 | | Kyan | + | + | | / | | | 0 | to 1 | |
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| | | (c) | Accounts Receivable Turnover | | Company | Choose Numerator: | / | Choose Denominator: | = | Accounts Receivable Turnover | | | | / | | = | Accounts receivable turnover | | Barco | | / | | = | 0 | times | | Kyan | | / | | = | 0 | times | |
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| | | (d) | Inventory Turnover | | Company | Choose Numerator: | / | Choose Denominator: | = | Inventory Turnover | | | | / | | = | Inventory turnover | | Barco | | / | | = | 0 | times | | Kyan | | / | | = | 0 | times | |
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| | | (e) | Days Sales in Inventory | | Company | Choose Numerator: | / | Choose Denominator: | x | Days | = | Days Sales in Inventory | | | | / | | x | | = | Days sales in inventory | | Barco | | / | | x | | = | 0 | days | | Kyan | | / | | x | | = | 0 | days | |
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| | | (f) | Days' Sales Uncollected | | Company | Choose Numerator: | / | Choose Denominator: | x | Days | = | Days' Sales Uncollected | | | | / | | x | | = | Days' sales uncollected | | Barco | | / | | x | | = | 0 | days | | Kyan | | / | | x | | = | 0 | days | |
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| | | Better short-term credit risk | | |
