Big Corporation reported the following income statement and balance sheet for the past two years:Big CorporationComparative Income StatementFor the Years Ended December 31, 2021 and 2020 2021 2020 Amount Amount Sales $ 100,600,800 $ 92,600,500 Cost of goods sold 66,750,500 60,750,800 Gross profit 33,850,300 31,849,700 Selling expenses 7,150,500 6,240,800 Administrative expenses 4,950,800 4,590,700 Total operating expenses 12,101,300 10,831,500 Income from operations 21,749,000 21,018,200 Interest Expense 425,500 476,300 Other income 148,400 127,200 Income before income tax 21,471,900 20,669,100 Income tax expense 8,588,800 8,267,700 Net income $ 12,883,100 $ 12,401,400 Big CorporationComparative Balance SheetAs of December 31, 2021 and 2020 2021 2020 Cash $14,799,900 $6,850,600 Accounts receivable, net 14,105,300 11,335,700 Inventories 5,860,300 4,210,100 Prepaid Expenses 1,678,800 1,215,800 Total current assets 36,444,300 23,612,200 Fixed assets, net 35,600,700 32,400,500 Total assets $72,045,000 $56,012,700 Accounts payable $9,350,800 $8,430,900 Accrued expenses 3,230,300 3,180,500 Other current liabilities 5,875,100 6,470,700 Total current liabilities 18,456,200 18,082,100 Long-term debt 15,750,600 15,900,500 Common stock 5,750,000 5,750,000 Retained earnings 32,088,200 16,280,100 Total liabilities & equity $72,045,000 $56,012,700 Common Dividends Paid 2,250,000 2,180,000 d. Calculate the Accounts Receivable Turnover for 2021.e. Calculate the Inventory Turnover for 2021.f. Calculate the Times Interest Earned Ratio for 2021.

Accounts Receivable Turnover (ART) Ratio is the ratio which represent the company's policy of…

Answered: d. Calculate the Accounts Receivable…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Big Corporation reported the following income statement and balance sheet for the past two years:

Big Corporation
Comparative Income Statement
For the Years Ended December 31, 2021 and 2020
		2021	2020
		Amount	Amount
	Sales	$ 100,600,800	$ 92,600,500
	Cost of goods sold	66,750,500	60,750,800
	Gross profit	33,850,300	31,849,700
	Selling expenses	7,150,500	6,240,800
	Administrative expenses	4,950,800	4,590,700
	Total operating expenses	12,101,300	10,831,500
	Income from operations	21,749,000	21,018,200
	Interest Expense	425,500	476,300
	Other income	148,400	127,200
	Income before income tax	21,471,900	20,669,100
	Income tax expense	8,588,800	8,267,700
	Net income	$ 12,883,100	$ 12,401,400


Big Corporation
Comparative Balance Sheet
As of December 31, 2021 and 2020
		2021	2020
	Cash	$14,799,900	$6,850,600
	Accounts receivable, net	14,105,300	11,335,700
	Inventories	5,860,300	4,210,100
	Prepaid Expenses	1,678,800	1,215,800
	Total current assets	36,444,300	23,612,200
	Fixed assets, net	35,600,700	32,400,500
	Total assets	$72,045,000	$56,012,700

	Accounts payable	$9,350,800	$8,430,900
	Accrued expenses	3,230,300	3,180,500
	Other current liabilities	5,875,100	6,470,700
	Total current liabilities	18,456,200	18,082,100
	Long-term debt	15,750,600	15,900,500
	Common stock	5,750,000	5,750,000
	Retained earnings	32,088,200	16,280,100
	Total liabilities & equity	$72,045,000	$56,012,700

	Common Dividends Paid	2,250,000	2,180,000

d. Calculate the Accounts Receivable Turnover for 2021.

e. Calculate the Inventory Turnover for 2021.

f. Calculate the Times Interest Earned Ratio for 2021.

Expert Solution

Step 1

Accounts Receivable Turnover (ART) Ratio is the ratio which represent the company's policy of allowing credit to its customers. Higher ART ratio means company allow less credit to its customers. If a company's ART ratio is 10 times, it means company allow 1/10th of its sales as Credit.
Inventory Turnover Ratio represent the company's policy of maintaining the stock and the times it convert its stock of raw material into cost of goods sold. Higher Inventory turnover means company maintain less stock and its stock move quickly.
Interest Earned Ratio is a solvency ratio which represent the ability of the company in payment of interest obligation. Higher Interest Earned Ratio is preferable.

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