Ratio computations and effect of transactions

Reference no: EM13763089

Ratio Computations and Effect of Transactions

Problem: Presented below is information related to Carver Inc.

CARVER INC.

BALANCE SHEET

DECEMBER 31, 2014

Cash		$ 45.000	Notes payable (short-term)	$ 50.000
Receivables	$110,000		Accounts payable	32.000
Less: Allowance	15.000	95.000	Accrued liabilities	5.000
Inventory		170,000	Common stock (par $5)	260.000
Prepaid insurance		8.000	Retained earnings	141.000
Land		20.000
Equipment (net)		150,000
		$488,000		$488,000

CARVER INC.

INCOME STATEMENT

FOR THE YEAR ENDED DECEMBER 31, 2014

Sales revenue Cost of goods sold		$1.400,000
Inventory. Jan. 1. 2014	$200,000
Purchases	790.000
Cost of goods available for sale	990,000
Inventory. Dec. 31. 2014	(170.000)
Cost of goods sold		820.000
Gross profit on sales		580.000
Operating expenses		170.000
Net income		$ 410.000

Instructions:

(a) Compute the following ratios or relationships of Carver Inc. Assume that the ending account balances are representative unless the information provided indicates differently.

(1) Current ratio.

(2) Inventory turnover.

(3) Accounts receivable turnover.

(4) Earnings per share.

(5) Profit margin on sales.

(6) Return on assets on December 31, 2014.

(b) Indicate for each of the following transactions whether the transaction would improve, weaken, or have no effect on the current ratio of Carver Inc. at December 31, 2014.

(1) Write off an uncollectible account receivable, $2,200.

(2) Purchase additional capital stock for cash.

(3) Pay $40,000 on notes payable (short-term).

(4) Collect $23,000 on accounts receivable.

(5) Buy equipment on account.

(6) Give an existing creditor a short-term note in settlement of account.

Reference no: EM13763089

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