
Requirement – 1
Financial ratio:
The financial ratios examine the performance of the company, and used in comparing own business with other same business. It indicates the relationship of two or more items of financial statements.
To determine: The Company that appears more efficient in collecting its
Requirement – 1

Explanation of Solution
Calculations of ratios are as follows:
Company | Inventory turnover ratio |
Average collection period |
Inventory turnover ratio | Average days in inventory |
J | 6.37 times (1) | 57 days (3) | 3.39 times (5) | 108 days (7) |
P | 5.15 times (2) | 71days (4) | 1.68 times (6) | 217 days (8) |
Table (1)
Working Notes:
1. Calculate the
2. Calculate the accounts receivable turnover ratio for Company P.
3. Calculate the Average collection period for Company J.
4. Calculate the Average collection period for Company P.
5. Calculate the inventory turnover ratio for Company J.
6. Calculate the inventory turnover ratio for Company P.
7. Calculate the average days in inventory for Company J.
8. Calculate the average days in inventory for Company P.
- Based on Accounts receivable ratio, the Company J collects their credit receivables within 57 days which is less than 14 days of Company P. Hence, Company J is preferable.
- Based on Inventory turnover ratio, Company J sells its inventory twice more than Company P. Hence, the Company J is preferable.
Requirement – 2
The Company that appears more efficient in greater earnings.
Requirement – 2

Explanation of Solution
Return on assets
It evaluates the efficiency of company’s assets. It reports the profit earned as the percentage of total assets used in the business. A company’s
Company | Rate of Return on Assets |
J | 14.90% (9) |
p | 1.40% (10) |
Table (2)
Working Notes:
1. Calculate the Rate of return on assets for Company J.
2. Calculate the Rate of return on assets for Company P.
Return on assets reports the overall profitability of the company. In this case, Company J has higher rate of profitability compared to Company P.
Requirement – 3
The more efficient company in respective of rate of return on assets with similar combination of profit margin and turnover.
Requirement – 3

Explanation of Solution
Profit Margin:
Profit margin reflects the portion of net income in the net sales. It is a profitability measure tool that is used to evaluate the net income a business earns on every dollar of net sales.
Company | Rate of Return on Assets |
J | 14.90% (11) |
p | 1.40% (12) |
Table (3)
Working Notes:
1. Calculate the rate of return on assets for Company J.
2. Calculate the rate of return on assets for Company P.
In this case, the profit margin and assets turnover for Company J is comparatively higher than Company P; hence Company J is more efficient.
Requirement – 4
The Company that appears more efficient in higher rate of return.
Requirement – 4

Explanation of Solution
Company | Rate of return on shareholders' equity |
J | 26.80% (13) |
p | 2.50% (14) |
Table (4)
Working Notes:
Calculate the Rate of return on shareholders’ equity for J.
Calculate the Rate of return on shareholders’ equity for P.
In this case, Company J provides higher rate of return on shareholders’ equity compared to Company P; hence Company J is more efficient.
Requirement – 5
The Company that appears more efficient in equity multiplier.
Requirement – 5

Explanation of Solution
Equity multiplier shareholders’ equity
Equity multiplier shareholders’ equity is used to measure the company’s financial leverage. If equity multiplier ratio is high it indicates high debt, if the ratio is low it indicates low debt to the company.
Company | Equity multiplier shareholders' equity |
J | 1.80 (15) |
p | 1.79 (16) |
Table (5)
Working Notes:
1. Calculate the equity multiplier shareholders’ equity for Company J.
2. Calculate the equity multiplier shareholders’ equity for Company P.
In this case, both the companies are having similar equity multipliers; it indicates both the companies’ equities are higher than the return on assets.
Want to see more full solutions like this?
Chapter 5 Solutions
INTERMEDIATE ACCOUNTING
- subject: general accounting questionarrow_forwardNicole organized a new corporation. The corporation began business on April 1 of year 1. She made the following expenditures associated with getting the corporation started: Expense Date Amount Attorney fees for articles of incorporation February 10 $ 40,500 March 1-March 30 wages March 30 6,550 March 1-March 30 rent Stock issuance costs March 30 2,850 April 1-May 30 wages Note: Leave no answer blank. Enter zero if applicable. April 1 May 30 24,000 16,375 a. What is the total amount of the start-up costs and organizational expenditures for Nicole's corporation? Start-up costs Organizational expendituresarrow_forwardWhat is the return on investment of this financial accounting question?arrow_forward
- Last Chance Mine (LCM) purchased a coal deposit for $2,918,300. It estimated it would extract 18,950 tons of coal from the deposit. LCM mined the coal and sold it, reporting gross receipts of $1.24 million, $13 million, and $11 million for years 1 through 3, respectively. During years 1-3, LCM reported net income (loss) from the coal deposit activity in the amount of ($11,400), $550,000, and $502,500, respectively. In years 1-3, LCM extracted 19,950 tons of coal as follows: (1) Tons of Coal 18,950 Depletion (2) Basis (2)(1) Rate $2,918,300 $154.00 Tons Extracted per Year Year 1 4,500 Year 2 8,850 Year 3 6,600 Note: Leave no answer blank. Enter zero if applicable. Enter your answers in dollars and not in millions of dollars. b. What is LCM's percentage depletion for each year (the applicable percentage for coal is 10 percent)? Percentage Depletion Year 1 Year 2 Year 3 $ 0arrow_forwardCan you please solve this accounting issue without use Ai?arrow_forwardBrown Company estimates that monthly sales will be as follows. January $100,000 February 150,000 March 180,000 Historical trends indicate that 40 percent of sales are collected during the month of sale, 50 percent are collected in the month following the sale, and 10 percent are collected two months after the sale. Brown's accounts receivable balance as of December 31 totals $80,000 ($72,000 from December's sales and $8,000 from November's sales). The amount of cash Brown can expect to collect during the month of January is?arrow_forward
- Please need answer the financial accounting questionarrow_forwardprovide answer of this General accounting questionarrow_forwardOn January 1, 2024, Packard Corporation leased equipment to Hewlitt Company. The lease term is 9 years. The first payment of $457,000 was made on January 1, 2024. Remaining payments are made on December 31 each year, beginning with December 31, 2024. The equipment cost Packard Corporation $2,956,548. The present value of the lease payments is $2,986,412. The lease is appropriately classified as a sales-type lease. Assuming the interest rate for this lease is 9%, what will be the balance reported as a liability by Hewlitt in its balance sheet on December 31, 2025?arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education





