Balance Sheets, Debt Ratio, Net Profit and Average Collection Period

Table 1 (use for Problems 24-27)
Smith Company Balance Sheet

Assets:
Cash and marketable securities $300,000
Accounts receivable 2,215,000
Inventories 1,837,500
Prepaid expenses 24,000
Total current assets $3,286,500
Fixed assets 2,700,000
Less: accumulated depreciation 1,087,500
Net fixed assets $1,612,500
Total assets $4,899,000
Liabilities:
Accounts payable $240,000
Notes payable 825,000
Accrued taxes 42,500
Total current liabilities $1,107,000
Long-term debt 975,000
Owner's equity 2,817,000
Total liabilities and owner's equity $4,899,000
Net sales (all credit) $6,375,000
Less: Cost of goods sold 4,312,500
Selling and administrative expense 1,387,500
Depreciation expense 135,000
Interest expense 127,000
Earnings before taxes $412,500
Income taxes 225,000
Net income $187,500
Common stock dividends $97,500
Change in retained earnings $90,000

24. Based on the information in Table 1, the current ratio is:
a. 2.97.
b. 1.46.
c. 2.11.
d. 2.23.

25. Based on the information in Table 1, and using a 360-day year, the average collection period is:
a. 71 days.
b. 84 days.
c. 64 days.
d. 125 days.

26. Based on the information in Table 1, the debt ratio is:
a. 0.70.
b. 0.20.
c. 0.74.
d. 0.42.

27. Based on the information in Table 1, the net profit margin is:
a. 4.61%.
b. 2.94%.
c. 1.97%.
d. 5.33%.

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Solution Preview

... Receivables / (sales / 360)
= 2,215,000 / ($6,375,000 / 360)
= 2,215,000 / 17708.33
= 125 days

Thus, the answer is = d. 125 days.

26. debt ratio = total debt / total assets
= (Total ...