acounting

1. 
Liquidity ratios. Edison, Stagg, and Thornton
have the following financial information at the close of business on July 10:

 

Edison

 

 

Stagg

 

 

Thornton

 

 

Cash

 

 

$6,000

 

 

$5,000

 

 

$4,000

 

 

Short-term investments

 

 

3,000

 

 

2,500

 

 

2,000

 

 

Accounts receivable

 

 

2,000

 

 

2,500

 

 

3,000

 

 

Inventory

 

 

1,000

 

 

2,500

 

 

4,000

 

 

Prepaid expenses

 

 

800

 

 

800

 

 

800

 

 

Accounts payable

 

 

200

 

 

200

 

 

200

 

 

Notes payable: short-term

 

 

3,100

 

 

3,100

 

 

3,100

 

 

Accrued payables

 

 

300

 

 

300

 

 

300

 

 

Long-term liabilities

 

 

3,800

 

 

3,800

 

 

3,800

 

  1. Compute the current and
         quick ratios for each of the three companies. (Round calculations to two
         decimal places.) Which firm is the most liquid? Why?

 

2.  Computation and evaluation of
  activity ratios.
The following data relate to Alaska Products, Inc:

 

 
 
 

20X5

 

 

20X4

 

 

Net
  credit sales

 

 

$832,000

 

 

$760,000

 

 

Cost
  of goods sold

 

 

530,000

 

 

400,000

 

 

Cash,
  Dec. 31

 

 

125,000

 

 

110,000

 

 

Average
  Accounts receivable

 

 

205,000

 

 

156,000

 

 

Average
  Inventory

 

 

70,000

 

 

50,000

 

 

Accounts
  payable, Dec. 31

 

 

115,000

 

 

108,000

 

 
 
 

Instructions

 

a. 
 
Compute the accounts receivable and inventory turnover ratios
  for 20X5. Alaska rounds all calculations to two decimal places.

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 

3. Profitability
ratios, trading on the equity.
Digital Relay has both
preferred and common stock outstanding. The com­pany reported the following
information for 20X7:

 

Net sales

 

 

$1,750,000

 

 

Interest expense

 

 

120,000

 

 

Income tax expense

 

 

80,000

 

 

Preferred dividends

 

 

25,000

 

 

Net income

 

 

130,000

 

 

Average assets

 

 

1,200,000

 

 

Average common stockholders’
  equity

 

 

500,000

 

  1. Compute the profit
         margin on sales ratio, the return on equity and the return on assets,
         rounding calculations to two decimal places.
  2. Does the firm have
         positive or negative financial leverage? Briefly ex­plain.

 

4.  Horizontal analysis. Mary Lynn Corporation has
  been operating for several years. Selected data from the 20X1 and 20X2
  financial statements follow.

 

 

20X2

 

 

20X1

 

 

Current Assets

 

 

$86,000

 

 

$80,000
 

 

 

Property, Plant, and Equipment
  (net)

 

 

99,000

 

 

90,000

 

 

Intangibles

 

 

25,000

 

 

50,000

 

 

Current Liabilities

 

 

40,800

 

 

48,000

 

 

Long-Term Liabilities

 

 

153,000

 

 

160,000

 

 

Stockholders’ Equity

 

 

16,200

 

 

12,000

 

 

Net Sales

 

 

500,000

 

 

500,000

 

 

Cost of Goods Sold

 

 

322,500

 

 

350,000

 

 

Operating Expenses

 

 

93,500

 

 

85,000

 

 
 

a. 
 
Prepare a horizontal analysis for 20X1 and 20X2. Briefly comment
  on the results of your work.

 

5.Vertical analysis. Mary Lynn Corporation has been operating for several
years. Selected data from the 20X1 and 20X2 financial statements follow.

 

20X2

 

 

20X1

 

 

Current Assets

 

 

  $86,000

 

 

  $80,000

 

 

Property, Plant, and Equipment (net)

 

 

99,000

 

 

80,000

 

 

Intangibles

 

 

25,000

 

 

50,000

 

 

Current Liabilities

 

 

40,800

 

 

48,000

 

 

Long-Term Liabilities

 

 

  153,000

 

 

  150,000

 

 

Stockholders’ Equity

 

 

16,200

 

 

12,000

 

 

Net Sales

 

 

  500,000

 

 

  500,000

 

 

Cost of Goods Sold

 

 

  322,500

 

 

  350,000

 

 

Operating Expenses

 

 

  93,500

 

 

85,000

 

a.  Prepare a vertical analysis for 20X1 and
20X2. Briefly comment on the results of your work.

"Is this question part of your assignment? We can help"

ORDER NOW