Question

The comparative statements of Wahlberg Company are presented here:Wahlberg CompanyIncome StatementsFor the Years Ended December 3120202019Net sales $1,890,540$1,750,500Cost of goods sold 1,058,5401,006,000Gross profit 832,000744,500Selling and administrative expenses 500,000479,000Income from operations 332,000265,500Other expenses and losses Interest expense 22,00020,000Income before income taxes 310,000245,500Income tax expense 92,00073,000Net income $218,000$172,500Wahlberg CompanyBalance SheetsDecember 31Assets20202019Current assets Cash $60,100$64,200Debt investments (short-term) 74,00050,000Accounts receivable 117,800102,800Inventory 126,000115,500Total current assets 377,900332,500Plant assets (net) 649,000520,300Total assets $1,026,900$852,800Liabilities and Stockholders’ EquityCurrent liabilities Accounts payable $160,000$145,400Income taxes payable 43,50042,000Total current liabilities 203,500187,400Bonds payable 220,000200,000Total liabilities 423,500387,400Stockholders’ equity Common stock ($5 par) 290,000300,000Retained earnings 313,400165,400Total stockholders’ equity 603,400465,400Total liabilities and stockholders’ equity $1,026,900$852,800All sales were on account. Net cash provided by operating activities for 2019 was $223,000. Capital expenditures were $137,000, and cash dividends were $58,800.Compute the following ratios for 2020. (Round free cash flow to 0 decimal places, e.g. 5,275 and all other answers to 2 decimal places, e.g. 1.83 or 1.83%. Use 365 days for calculation.)(a) Earnings per share (b) Return on common stockholders’ equity (c) Return on assets (d) Current ratio (e) Accounts receivable turnover (f) Average collection period (g) Inventory turnover (h) Days in inventory (i) Times interest earned (j) Asset turnover (k) Debt to assets ratio (l) Free cash flow

Answer 1

Answer:(a) 5.4 (b) 0.53, (c) 0.42, (d) 1.9 (e) 32.1 (f) 11.4 (g)17 (h) 21 (i) 3.4 (j) 3.7 (k) 41% (l) 86,000

Explanation:

(a) Earning per share = Total earning after tax / Number of shares

= Number of shares = 290,000 ÷ 5 = 58,000

= 313,400 ÷ 58,000 = 5.4

(b) Return on common stockholders equity

= Earning Available to ordinary equity /Total shareholders equity - preference shares

= 290,000/603,400 - 58,800

= 290,000 ÷ 544,600

= 0.53

(c) Return on Asset = Net income / Average Total Asset

= Average Total Asset = 1,026,900 ÷ 2 = 513,450

=218,000 ÷ 513,450

= 0.42

(d) Current Ratio = CurrentAsset ÷ Current Liabilities

= 377,900 ÷ 203,500

= 1.85

= 1.9 approximately

(e) Account Receivable Turnover = Annual credit sales ÷ Average Account Receivable

Average Account Receivable = 117,800 ÷ 2 = 58,900

= 1,890,540 ÷ 58,900

=32.09

= 32.1 approximately

(f) Average Collection Period = Average Account Receivable ÷ (Annual Sales ÷ 36365days )

=58,900÷ (1,890,540 ÷ 365)

= 58,900÷ 5,179.56

=11.37

= 11.4 approximately

(g) Inventory Turnover = Cost of good sold ÷ Average Inventory

Average inventory = 126,000 ÷ 2 = 63,000

1,058,540 ÷ 63,000 = 16.8

= 17 approximately

(h) Days in Inventory = 365 ÷ inventory turnover

= 365 ÷ 17 = 21.4

= 21

(i) Times interest earned = income before interest & income taxes ÷ interest expense

= 310,000 ÷ 92,000

= 3.36

= 3.4 approximately

(j) Asset Turnover = Net Sales ÷ Average Total Asset

Average Total Asset = 1,026,900 ÷ 2 = 513,450

= 1,890,540 ÷ 513,450

= 3.68

= 3.7 approximately

(k) Debt to Asset Ratio = Total Liabilities ÷ Total Asset × 100%

= 423,500 ÷ 1,026,900 × 100%

= 0.412 × 100

= 41.2%

= 41%

(l) Free cash flow = Cash from operating Activities - Capital Expenditure

=223,000 - 137,000

=86,000