Answer and Explanation:
The formula and the computations are shown below:
1. Working capital is
Working capital = Currents assets - current liabilities
= $612,000 - $300,000
= $312,000
2. The current ratio is
Current ratio = Current assets ÷ Current liabilities
= $612,000 ÷ $300,000
= 2.04 times
3. Acid test ratio is
Acid test ratio = Quick assets ÷ Current liabilities
where,
Quick assets = Cash + account receivable
= $21,000 + $230,000
= $251,000
And, the current liabilities is $300,000
So, the acid test ratio is
= $251,000 ÷ $300,000
= 0.84 times
4. Debt to equity ratio
= Total liabilities ÷ Total stockholder equity
= $650,000 ÷ $832,000
= 0.78 times
5. Time interest earned ratio is
= Earning before interest and taxes ÷ interest expenses
= ($514,500 + $33,000) ÷ ($33,000)
= 16.59 times
6. Average collection period is
= Total number of days in a year ÷ account receivable turnover ratio
where,
Account receivable turnover ratio is
Net credit sales ÷ Average accounts receivable
where,
Net credit sales is $2,800,000
And, the Average accounts receivable would be
= (Accounts receivable, beginning of year + Accounts receivable, end of year) ÷ 2
= ($170,000 + $230,000) ÷ 2
= $200,000
So, the accounts receivable turnover ratio would be
= $2,800,000 ÷ $200,000
= 14 times
So, average collection period is
= 365 days ÷ 14
= 26.07 days
7. Average sales period =
= Total number of days in a year ÷ inventory turnover ratio
where,
Inventory turnover ratio is
= cost of good sold ÷ Average inventory
where,
Cost of goods sold is $1,612,500
And, the Average inventory would be
= (Inventory, beginning of year + Inventory, end of year) ÷ 2
= ($360,000 + $350,000) ÷ 2
= $355,000
So, the invnetory turnover ratio would be
= $1,612,500 ÷ $355,000
= 4.54 times
So, average sales period is
= 365 days ÷ 4.54
= 80.40 days
8. Operating cycle is
The operating cycle = Days inventory outstanding + days sale outstanding
= 80.40 days + 26.07 days
= 106.47 days
