Answer:
1. Gross margin percentage = 40%
2. Current ratio. (Round your answer to 2 decimal places.) = 2.45
3. Acid-test ratio = 0.95
4. Average collection period = 26 days
5. Average sale period = 81 days
6. Debt-to-equity ratio = 0.63
7. Times interest earned = 6 times
8. Book value per share = $40 per share
Explanation:
1. Gross margin percentage.
This can be calculated using the following formula:
Gross margin percentage = (Gross margin / Sales) * 100 .......... (1)
Where;
Sales = $2,100,000
Gross margin = $840,000
We substitute the values into equation (1) and have:
Gross margin percentage = ($840,000 / $2,100,000) * 100 = 0.40 * 100 = 40%
2. Current ratio. (Round your answer to 2 decimal places.)
This can be calculated using the following formula:
Current ratio = Total current assets / Current liabilities ............ (2)
Where;
Total current assets = $490,000
Current liabilities = $200,000
We substitute the values into equation (2) and have:
Current ratio = $490,000 / $200,000 = 2.45
3. Acid-test ratio.
This can be calculated using the following formula:
Acid-test ratio = (Total current assets – Closing Merchandise Inventory) / Current liabilities ........ (3)
Where;
Total current assets = $490,000
Closing Merchandise Inventory = $300,000
Current liabilities = $200,000
We substitute the values into equation (3) and have:
Acid-test ratio = ($490,000 - $300,000) / $200,000 = $190,000 / $200,000 = 0.95
4. Average collection period.
This can be calculated using the following formula:
Average collection period = (Average accounts receivable / Sales) * 365 days …….. (4)
Where;
Average accounts receivable = (Beginning account receivable + Ending account receivable) / 2 = ($140,000 + $160,000) / 2 = $300,000 / 2 = $150,000
Sales = $2,100,000
We substitute the values into equation (4) and have:
Average collection period = ($150,000 / $2,100,000) * 365 = 26 days approximately.
5. Average sale period.
This can be calculated using the following formula:
Average sale period = 365 days / Inventory turnover ……………………….. (5)
Where;
Inventory turnover = Cost of goods sold / Average inventory = Cost of goods sold / [(Opening inventory + Closing inventory) / 2] = 1,260,000 / [($260,000 + $300,000) / 2] = 1,260,000 / [$560,000 / 2] = 1,260,000 / $280,000 = 4.50
We substitute the values into equation (5) and have:
Average sale period = 365 days / 4.50 = 81 days
6. Debt-to-equity ratio.
This can be calculated using the following formula:
Debt-to-equity ratio = Total liabilities / Total stockholders’ equity ……………………. (6)
Where;
Total liabilities = $500,000
Total stockholders’ equity = $800,000
We substitute the values into equation (6) and have:
Debt-to-equity ratio = $500,000 / $800,000 = 0.63
7. Times interest earned.
This can be calculated using the following formula:
Times interest earned = Income before interest and tax / Interest expense ……………….. (7)
Where;
Income before interest and tax = Net operating income = $180,000
Interest expense = $30,000
We substitute the values into equation (7) and have:
Times interest earned = $180,000 / $30,000 = 6 times
8. Book value per share.
This can be calculated using the following formula:
Book value per share = Total stockholders’ equity / Number of shares outstanding ……….. (8)
Where;
Total stockholders’ equity = $800,000
Number of shares outstanding = $100,000 / $5 = 20,000 shares
We substitute the values into equation (8) and have:
Book value per share = $800,000 / 20,000 = $40 per share