"19. The Speed-O Company makes scooters for kids. Sales in 2008 were $8,000,000. Assetswere as follows:Cash???????????????. $200,000Accounts receivable?????????. 1,600,000Inventory?????????????.. 800,000Net plant and equipment???????.. 1,000,000Total assets??????????? $3,600,000a. Compute the following:1. Accounts receivable turnover2. Inventory turnover3. Fixed asset turnover4. Total asset turnoverb. In 2009, sales increased to $10,000,000 and the assets for that year were as follows:Cash???????????????... $200,000Accounts receivable?????????.. 1,800,000Inventory?????????????... 2,200,000Net plant and equipment???????... 1,050,000Total assets???????????.. $5,250,000Once again, compute the four ratios listed in 19a.c. Indicate if there is an improvement or decline in total asset turnover, and based on theother ratios, indicate why this development has taken place.S3-25 3-19. Solution:Speed-O Companya. 1. Accounts receivable turnover = Sales/AccountsReceivable$8,000,000 = 5x1,600,000 2. Inventory turnover = Sales/Inventory$8,000,000 =10x 800,000 3. Fixed asset turnover = Sales/(Net Plant & Equipment)$8,000,000 = 8x1,000,000 4. Total asset turnover = Sales/Total Assets$8,000,000 = 2.22x3,600,000 b. 1. Accounts receivable turnover$10,000,000 = 5.56x1,800,000 2. Inventory turnover$10,000,000 = 4.55x2,200,000 S3-26 3-19. (Continued)3. Fixed asset turnover$10,000,000 = 9.52x1,050,000 4. Total asset turnover$10,000,000 =1.90x5,250,000 c. There is a decline in total asset turnover from 2.22 to 1.90.This development has taken place because of the slowdown ininventory turnover (10x down to 4.55x). The other two ratiosare slightly improved.S3-27 20. The balance sheet for Stud Clothiers is shown below. Sales for the year were $2,400,000,with 90 percent of sales sold on credit.STUD CLOTHIERSBalance Sheet 200XAssets Liabilities and EquityCash???????? $ 60,000 Accounts payable?????.. $ 220,000Accounts receivable?... 240,000 Accrued taxes??????? 30,000Inventory?????? 350,000 Bonds payable(long-term)???????? 150,000Plant and equipment?...410,000 Common stock??????.. 80,000Paid-in capital??????? 200,000Retained earnings?????.. 380,000Total assets???... $1,060,000 Total liabilities and equity… $1,060,000Compute the following ratios:a. Current ratio.b. Quick ratio.c. Debt-to-total-assets ratio.d. Asset turnover.e. Average collection period.3-20. Solution:Stud ClothiersCurrent assets Current ratio = a.Current liabilities $650,000 =$250,000 = 2.6x S3-28 3-20. (Continued)(Current assets - inventory) Quick ratio = b. Current liabilities $650,000 - $350,000 = $250,000 $300,000 = $250,000 =1.2x Total debt c.Debt to total assets = Total assets $400,000 =$1,060,000 = 37.74% Sales d.Asset turnover = Total assets $2,400,000 =$1,060,000 = 2.26x e.Accounts receivable Average collection period = Average daily credit sales ($2,400,000 × 0.90) $240,000 = $240,000 / = = 40 days 360 days $6,000 per day S3-29 "