Answer:
ADRIAN EXPRESS
1. Average Collection Period = 365/Average Receivable Turnover Ratio
= 365/13.4
= 27.2 days
2. Average days in inventory = Average Inventory/Cost of goods sold * 365
= $1,615,000/$9,851,500 * 365
= 59.8 days
3. Current Ratio = Current Assets/Current Liabilities
= $3,850,000/$2,010,000
= 1.9 to 1
4. Debt to Equity Ratio = Total Debts/Equity
= $4,320,000/$4,340,000 * 100
= 99.5%
Explanation:
a) Data and Calculations:
ADRIAN EXPRESS
Income Statement for the year ended December 31, 2021:
Sales = $16,281,000
Cost of goods sold = $9,851,500
Net Income = $1,610,000
ADRIAN EXPRESS
Balance Sheets December 31, 2021 and 2020
2021 2020
Assets
Current assets:
Cash $ 610,000 $ 770,000
Accounts receivable 1,420,000 1,010,000
Inventory 1,820,000 1,410,000
Long-term assets 4,810,000 4,250,000
Total assets $ 8,660,000 $ 7,440,000
Liabilities and Stockholders' Equity
Current liabilities $ 2,010,000 $ 1,670,000
Long-term liabilities 2,310,000 2,410,000
Common stock 1,990,000 1,990,000
Retained earnings 2,350,000 1,370,000
Total liabilities and stockholders' equity $ 8,660,000 $ 7,440,000
Industry averages for the following four risk ratios are as follows:
Average collection period 25 days
Average days in inventory 60 days
Current ratio 2 to 1
Debt to equity ratio 50%
Average accounts receivable = ($1,420,000 + 1,010,000)/2 = $1,215,000
Average Receivable Turnover Ratio = Net Sales/Average Receivable
= $16,281,000/$1,215,000 = 13.4
Average Collection Period = 365/Average Receivable Turnover Ratio
= 365/13.4
= 27.2 days
Average Inventory = ($1,820,000 + 1,410,000)/2 = $1,615,000
Average days in inventory = Average Inventory/Cost of goods sold * 365
= $1,615,000/$9,851,500 * 365
= 59.8 days
Current Assets = Total assets - Long-term assets
= $8,660,000 - $4,810,000
= $3,850,000
Current Ratio = Current Assets/Current Liabilities
= $3,850,000/$2,010,000
= 1.9 to 1
Total debts = current liabilities + long-term liabilities
= $2,010,000 + $2,310 = $4,320,000
Total Equity = Common Stock + Retained Earnings
= $1,990,000 + $2,350,000 = $4,340,000
Debt to Equity Ratio = Total Debts/Equity
= $4,320,000/$4,340,000 * 100
= 99.5%
