The financial statements for Castile Products, Inc., are given below: Castile Products, Inc.Balance SheetDecember 31 Assets Current assets: Cash $ 20,000 Accounts receivable, net 190,000 Merchandise inventory 320,000 Prepaid expenses 10,000 Total current assets 540,000 Property and equipment, net 880,000 Total assets $ 1,420,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities $ 280,000 Bonds payable, 12% 350,000 Total liabilities 630,000 Stockholders’ equity: Common stock, $10 par value $ 140,000 Retained earnings 650,000 Total stockholders’ equity 790,000 Total liabilities and equity $ 1,420,000 Castile Products, Inc.Income StatementFor the Year Ended December 31 Sales $ 2,625,000 Cost of goods sold 1,209,500 Gross margin 1,415,500 Selling and administrative expenses 610,000 Net operating income 805,500 Interest expense 42,000 Net income before taxes 763,500 Income taxes (30%) 229,050 Net income $ 534,450 Account balances at the beginning of the year were: accounts receivable, $160,000; and inventory, $270,000. All sales were on account. Required: Compute the following financial data and ratios: 1. Working capital. 2. Current ratio. (Round your answer to 2 decimal places.) 3. Acid-test ratio. (Round your answer to 2 decimal places.) 4. Debt-to-equity ratio. (Round your answer to 2 decimal places.) 5. Times interest earned ratio. (Round your answer to 2 decimal places.) 6. Average collection period. (Use 365 days in a year. Round your answer to 1 decimal place.) 7. Average sale period. (Use 365 days in a year. Round your intermediate and final answer to 1 decimal place.) 8. Operating cycle. (Round your intermediate calculations and final answers to 1 decimal place.)
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
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The financial statements for Castile Products, Inc., are given below: |
| Castile Products, Inc. Balance Sheet December 31 |
||||||
| Assets | ||||||
| Current assets: | ||||||
| Cash | $ | 20,000 | ||||
| |
190,000 | |||||
| Merchandise inventory | 320,000 | |||||
| Prepaid expenses | 10,000 | |||||
| Total current assets | 540,000 | |||||
| Property and equipment, net | 880,000 | |||||
| Total assets | $ | 1,420,000 | ||||
| Liabilities and |
||||||
| Liabilities: | ||||||
| Current liabilities | $ | 280,000 | ||||
| Bonds payable, 12% | 350,000 | |||||
| Total liabilities | 630,000 | |||||
| Stockholders’ equity: | ||||||
| Common stock, $10 par value | $ | 140,000 | ||||
| |
650,000 | |||||
| Total stockholders’ equity | 790,000 | |||||
| Total liabilities and equity | $ | 1,420,000 | ||||
| Castile Products, Inc. Income Statement For the Year Ended December 31 |
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| Sales | $ | 2,625,000 | |
| Cost of goods sold | 1,209,500 | ||
| Gross margin | 1,415,500 | ||
| Selling and administrative expenses | 610,000 | ||
| Net operating income | 805,500 | ||
| Interest expense | 42,000 | ||
| Net income before taxes | 763,500 | ||
| Income taxes (30%) | 229,050 | ||
| Net income | $ | 534,450 | |
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Account balances at the beginning of the year were: accounts receivable, $160,000; and inventory, $270,000. All sales were on account. |
| Required: |
| Compute the following financial data and ratios: |
| 1. |
|
| 2. |
| 3. | Acid-test ratio. (Round your answer to 2 decimal places.) |
| 4. | Debt-to-equity ratio. (Round your answer to 2 decimal places.) |
| 5. | Times interest earned ratio. (Round your answer to 2 decimal places.) |
| 6. | Average collection period. (Use 365 days in a year. Round your answer to 1 decimal place.) |
| 7. | Average sale period. (Use 365 days in a year. Round your intermediate and final answer to 1 decimal place.) |
| 8. |
Operating cycle. (Round your intermediate calculations and final answers to 1 decimal place.) |
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