Answer:
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Liquidity and Solvency Measures Computations
Current ratio $3,093,000 ÷ $840,000
Working capital $3,093,000 – $840,000
Accounts receivable turnover $8,280,000 ÷ [($714,000 + $740,000) ÷ 2]
Ratio of fixed assets to long-term liabilities $2,690,000 ÷ $1,690,000
Inventory turnover $4,100,000 ÷ [($1,072,000 + $1,100,000) ÷ 2]
Number of days' sales in receivables [($714,000 + $740,000) ÷ 2] ÷ ($8,280,000 ÷ 365)
Number of days' sales in inventory [($1,072,000 + $1,100,000) ÷ 2] ÷ ($4,100,000 ÷ 365)
Times interest earned ($989,400 + $127,000) ÷ $127,000
Ratio of liabilities to stockholders' equity $2,530,000 ÷ $4,077,000
Quick ratio $1,866,000 ÷ $840,000
Profitability Measures Computations
Asset turnover $8,280,000 ÷ [($5,783,000 + $5,593,000) ÷ 2]
Return on total assets ($801,420 + $127,000) ÷ [($6,607,000 + $6,417,000) ÷ 2]
Return on stockholders’ equity $801,420 ÷ [($4,077,000 + $3,873,150) ÷ 2]
Return on common stockholders’ equity ($801,420 – $65,000) ÷ [($3,589,500 + $3,445,920) ÷ 2]
Earnings per share on common stock ($801,420 – $65,000) ÷ 250,000 shares
Price-earnings ratio $35 ÷ $3.05
Dividends per share $175,000 ÷ 250,000 shares
Dividend yield $0.70 ÷ $35
Two of the computations use shares.
Use the following comparative income statement form to enter amounts you identify from the computations on the Liquidity and Solvency Measures panel and on the Profitability Measures panel. Compute any missing amounts and complete the horizontal analysis columns. Enter percentages as decimal amounts, rounded to one decimal place. When rounding, look only at the figure to the right of one decimal place. If < 5, round down and if ≥ 5, round up. For example, for 32.048% enter 32.0%. For 32.058% enter 32.1%.
Comparative Income Statement
For the Years Ended December 31, 20Y6 and 20Y5
1 20Y6 20Y5 Amount Increase (Decrease) Percentage Increase (Decrease)
2 Sales $7,287,000.00
3 Cost of goods sold 3,444,000.00
4 Gross profit $3,843,000.00
5 Selling expenses $1,457,600.00
6 Administrative expenses 1,242,000.00 1,106,000.00
7 Total operating expenses $2,563,600.00
8 Income from operations $1,279,400.00
9 Interest expense 120,600.00
10 Income before income tax $1,158,800.00
11 Income tax expense 181,980.00
12 Net income $976,820.00
Explanation:
Items Computations value
1. Sales: Sales are taken from number of days' sales in receivables or accounts
receivable turnover ratio, with assuming that all sales are credit sales 8,280,000.00
2. Cost of goods sold: Cost of goods sold is taken from number of days' sales in inventory or Inventory turnover 4,100,000.00
3. Gross profit: Gross profit = Sales - Cost of goods sold 4,180,000.00
4. Selling expenses: Selling expenses = Total operating expenses - Cost of goods sold - Administrative expenses 1,821,600.00
5. Administrative expenses: available 1,242,000.00
6. Total operating expenses: Total operating expenses = Sales - Income from operations 7163600
7. Income from operations: Income from operations (or is also known EBIT) = Income before income tax + Interest expense 1,116,400.00
8. Interest expense: Interest expense is taken from Times interest earned and Return on total assets 127,000.00
9. Income before income tax: Income before income tax is taken from Times interest earned and Interest expense being specified already 989,400.00
10. Income tax expense: Income tax expense = Income before income tax - Net income 187,980.00
11. Net income: Net income is taken from Return on total assets and Return on common stockholders’ equity 801,420.00