Platinum Corporation belongs to the rubber tire trading industry. Its most recent balance sheet and income statement appear below: Statement of Financial Position December 31, Year 2 and Year 1 (in thousands of dollars) Year 2 Year 1 Assets Current assets: Cash................................................................ $ 30 $ 110 Accounts receivable....................................... 210 260 Inventory........................................................ 190 170 Prepaid expenses............................................ 70 70 Total current assets............................................ 500 610 Plant and equipment, net................................... 810 740 Total assets........................................................ $1,310 $1,350 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable........................................... $ 140 $ 150 Accrued liabilities.......................................... 30 30 Notes payable, short term.............................. 40 40 Total current liabilities...................................... 210 220 Bonds payable................................................... 190 240 Total liabilities.................................................. 400 460 Stockholders’ equity: Preferred stock, $100 par value, 5%.............. 100 100 Common stock, $2 par value......................... 400 400 Additional paid-in capital–common stock..... 130 130 Retained earnings........................................... 280 260 Total stockholders’ equity................................. 910 890 Total liabilities & stockholders’ equity............. $1,310 $1,350 Income Statement For the Year Ended December 31, Year 2 (in thousands of dollars) Sales (all on account).......................................... $1,260 Cost of goods sold.............................................. 770 Gross margin....................................................... 490 Selling and administrative expense.................... 400 Net operating income.......................................... 90 Interest expense.................................................. 26 Net income before taxes..................................... 64 Income taxes (30%)............................................ 19 Net income.......................................................... $ 45 Required: 8.1 Compute the following for Year 2: a. Working capital. b. Current ratio. c. Acid-test ratio. d. Accounts receivable turnover. e. Average collection period. f. Inventory turnover. g. Average sale period 8.2 What can you say about the company’s short-term liquidity? 8.3 If the industry average in terms of collection period is 45 days, and inventory turnover is 6 times, how is the company performing compared to the industry?

Platinum Corporation belongs to the rubber tire trading industry. Its most recent balance sheet and income statement appear below: Statement of Financial Position December 31, Year 2 and Year 1 (in thousands of dollars) Year 2 Year 1 Assets Current assets: Cash................................................................ $ 30 $ 110 Accounts receivable....................................... 210 260 Inventory........................................................ 190 170 Prepaid expenses............................................ 70 70 Total current assets............................................ 500 610 Plant and equipment, net................................... 810 740 Total assets........................................................ $1,310 $1,350 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable........................................... $ 140 $ 150 Accrued liabilities.......................................... 30 30 Notes payable, short term.............................. 40 40 Total current liabilities...................................... 210 220 Bonds payable................................................... 190 240 Total liabilities.................................................. 400 460 Stockholders’ equity: Preferred stock, $100 par value, 5%.............. 100 100 Common stock, $2 par value......................... 400 400 Additional paid-in capital–common stock..... 130 130 Retained earnings........................................... 280 260 Total stockholders’ equity................................. 910 890 Total liabilities & stockholders’ equity............. $1,310 $1,350 Income Statement For the Year Ended December 31, Year 2 (in thousands of dollars) Sales (all on account).......................................... $1,260 Cost of goods sold.............................................. 770 Gross margin....................................................... 490 Selling and administrative expense.................... 400 Net operating income.......................................... 90 Interest expense.................................................. 26 Net income before taxes..................................... 64 Income taxes (30%)............................................ 19 Net income.......................................................... $ 45 Required: 8.1 Compute the following for Year 2: a. Working capital. b. Current ratio. c. Acid-test ratio. d. Accounts receivable turnover. e. Average collection period. f. Inventory turnover. g. Average sale period 8.2 What can you say about the company’s short-term liquidity? 8.3 If the industry average in terms of collection period is 45 days, and inventory turnover is 6 times, how is the company performing compared to the industry?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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8.) Platinum Corporation belongs to the rubber tire trading industry. Its most recent balance sheet and income statement appear below:

Statement of Financial Position December 31, Year 2 and Year 1 (in thousands of dollars)


	Year 2	Year 1
Assets
Current assets:
Cash................................................................	$ 30	$ 110
Accounts receivable.......................................	210	260
Inventory........................................................	190	170
Prepaid expenses............................................	70	70
Total current assets............................................	500	610
Plant and equipment, net...................................	810	740
Total assets........................................................	$1,310	$1,350

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable...........................................	$ 140	$ 150
Accrued liabilities..........................................	30	30
Notes payable, short term..............................	40	40
Total current liabilities......................................	210	220
Bonds payable...................................................	190	240
Total liabilities..................................................	400	460
Stockholders’ equity:
Preferred stock, $100 par value, 5%..............	100	100
Common stock, $2 par value.........................	400	400
Additional paid-in capital–common stock.....	130	130
Retained earnings...........................................	280	260
Total stockholders’ equity.................................	910	890
Total liabilities & stockholders’ equity.............	$1,310	$1,350

	Income Statement For the Year Ended December 31, Year 2 (in thousands of dollars)


	Sales (all on account)..........................................	$1,260
	Cost of goods sold..............................................	770
	Gross margin.......................................................	490
	Selling and administrative expense....................	400
	Net operating income..........................................	90
	Interest expense..................................................	26
	Net income before taxes.....................................	64
	Income taxes (30%)............................................	19
	Net income..........................................................	$ 45

Required:

8.1 Compute the following for Year 2:

a. Working capital.

b. Current ratio.

c. Acid-test ratio.

d. Accounts receivable turnover.

e. Average collection period.

f. Inventory turnover.

g. Average sale period

8.2 What can you say about the company’s short-term liquidity?

8.3 If the industry average in terms of collection period is 45 days, and inventory turnover is 6 times, how is the company performing compared to the industry?

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