
a.
Compute
a.

Explanation of Solution
Working capital: Working capital refers to the excess amount of current assets over its current liabilities of a business. It measures the excess funds that are required for the companies to carry out their day to day operations, excluding any new funds that have been invested during the year. Working capital is calculated by using the formula:
Compute working capital of Company AL for 2019 and 2018:
Ratios and Formula | 2019 | 2018 |
Working Capital: |
Table (1)
Thus, the working capital of Company AL for 2019 and 2018 is $122,200 and $120,000 respectively.
b.
Compute
b.

Explanation of Solution
Current ratio: Current ratio is one of the
Compute current ratio of Company AL for 2019 and 2018:
Ratios and Formula | 2019 | 2018 |
Current ratio: |
Table (2)
Thus, the current ratio of Company AL for 2019 and 2018 is 1.80:1 and 1.99:1 respectively.
c.
Compute quick ratio of Company AL for 2019 and 2018.
c.

Explanation of Solution
Quick ratio: It is a ratio used to determine a company’s ability to pay back its current liabilities by liquid assets that are current assets except inventory and prepaid expenses.
Compute quick ratio of Company AL for 2019 and 2018:
Ratios and Formula | 2019 | 2018 |
Quick ratio: |
Table (3)
Note: Quick assets include cash, marketable securities and
Thus, the quick ratio of Company AL for 2019 and 2018 is 0.75:1 and 0.72:1 respectively.
d.
Compute receivables turnover of Company AL for 2019 and 2018.
d.

Explanation of Solution
Account Receivables turnover ratio: Account Receivables turnover ratio is mainly used to evaluate the collection process efficiency. It helps the company to know the number of times the accounts receivable is collected in a particular time period. This ratio is determined by dividing credit sales and average account receivables.
Compute receivables turnover of Company AL for 2019 and 2018:
Ratios and Formula | 2019 | 2018 |
Accounts Receivables turnover: |
Table (4)
Working Note:
Determine the amount of average accounts receivable for 2019.
Determine the amount of average accounts receivable for 2018.
Thus, the accounts receivable turnover of Company AL for 2019 and 2018 is 4.60 times and 4.51 times respectively.
e.
Compute average days to collect account receivable of Company AL for 2019 and 2018.
e.

Explanation of Solution
Average days to collect accounts receivable: This ratio is used to determine the number of days a particular company takes to collect accounts receivables. It is calculated by using the formula:
Compute average days to collect receivable of Company AL for 2019 and 2018:
Ratios and Formula | 2019 | 2018 |
Average days to collect accounts receivable: |
Table (5)
Note: Refer table (4) for the values of receivable turnover.
Thus, the average days to collect receivable of Company AL for 2019 and 2018 is 79 days and 81 days respectively.
f.
Compute inventory turnover of Company AL for 2019 and 2018.
f.

Explanation of Solution
Inventory Turnover Ratio: This ratio is a financial metric used by a company to quantify the number of times inventory is used or sold during the accounting period. It is calculated by using the formula:
Compute inventory turnover of Company AL for 2019 and 2018:
Ratios and Formula | 2019 | 2018 |
Inventory turnover: |
Table (6)
Working Note:
Determine the amount of average inventory for 2019.
Determine the amount of average inventory for 2018.
Thus, the inventory turnover of Company AL for 2019 and 2018 is 0.86 times and 0.73 times respectively.
g.
Compute number of days to sell inventory of Company AL for 2019 and 2018.
g.

Explanation of Solution
Numbers of days to sell inventory: This ratio is determined as the number of days a particular company takes to make sales of the inventory available with them. It is calculated by using the formula:
Compute number of days to sell inventory of Company AL for 2019 and 2018:
Ratios and Formula | 2019 | 2018 |
Number of days to sell inventory: |
Table (7)
Note: Refer table (6) for the values of inventory turnover.
Thus, the number of days to sell inventory of Company AL for 2019 and 2018 is 424 days and 500 days respectively.
h.
Compute debt to assets ratio of Company AL for 2019 and 2018.
h.

Explanation of Solution
Debt to assets ratio: The debt to asset ratio shows the relationship between total asset and the total liability of the company. Debt ratio reflects the financial strategy of the company. It is used to measure the percentage of company’s assets that are financed by long term debts. Debt to assets ratio is calculated by using the formula:
Compute debt to assets ratio of Company AL for 2019 and 2018:
Ratios and Formula | 2019 | 2018 |
Debt to assets ratio: |
Table (8)
Thus, the debt to assets ratio of Company AL for 2019 and 2018 is 47.3% and 45.9% respectively.
i.
Compute debt to equity ratio of Company AL for 2019 and 2018.
i.

Explanation of Solution
Debt–to-equity ratio: The debt-to-equity ratio indicates that the company’s debt as a proportion of its
Compute debt to equity ratio of Company AL for 2019 and 2018:
Ratios and Formula | 2019 | 2018 |
Debt to equity ratio: |
Table (9)
Thus, the debt to equity ratio of Company AL for 2019 and 2018 is 0.89:1 and 0.84:1 respectively.
j.
Compute number of times interest earned of Company AL for 2019 and 2018.
j.

Explanation of Solution
Number of times interest earned: Number of times interest is earned quantifies the number of times the earnings before interest and taxes can pay the interest expense. First, determine the sum of income before income tax and interest expense. Then, divide the sum by interest expense.
Compute number of times interest earned of Company AL for 2019 and 2018:
Ratios and Formula | 2019 | 2018 |
Number of times interest was earned: |
Table (10)
Working Note:
Determine the amount of earnings before interest and expenses for 2019.
Determine the amount of earnings before interest and expenses for 2018.
Thus, the number of times interest earned ratio of Company AL for 2019 and 2018 is 7.88 times and 8.61 times respectively.
k.
Compute plant assets to long term debt ratio of Company AL for 2019 and 2018.
k.

Explanation of Solution
Plant assets to long term debt: Plant assets to long term debt ratio measure the value of assets per each dollar of long term liabilities. It is calculated by using the formula:
Compute plant assets to long term debt ratio of Company AL for 2019 and 2018:
Ratios and Formula | 2019 | 2018 |
Plant assets to long-term debt: |
Table (11)
Thus, the plant assets to long term debt ratio of Company AL for 2019 and 2018 is 2.05:1 and 2.01:1 respectively.
l.
Compute net margin of Company AL for 2019 and 2018.
l.

Explanation of Solution
Net profit margin: It is one of the profitability ratios. Profit margin ratio is used to measure the percentage of net income that is being generated per dollar of revenue or sales.
Compute net margin of Company AL for 2019 and 2018:
Ratios and Formula | 2019 | 2018 |
Net margin: |
Table (12)
Thus, the net margin of Company AL for 2019 and 2018 is 13.91% and 15.61% respectively.
m.
Compute turnover of assets of Company AL for 2019 and 2018.
m.

Explanation of Solution
Turnover of assets: Turnover of assets is a ratio that measures the productive capacity of the total assets to generate the sales revenue for the company. Thus, it shows the relationship between the net sales and the average total assets. Turnover of assets is calculated as follows:
Compute turnover of asset of Company AL for 2019 and 2018:
Ratios and Formula | 2019 | 2018 |
Turnover of assets: |
Table (13)
Note: Since, the beginning total assets for 2018 are not given. So, the total amount of total assets for 2018 is assumed as average total assets.
Working note:
Determine the amount of average total assets for 2019.
Thus, the turnover of asset of Company AL for 2019 and 2018 are 14.06% and 11.07% respectively.
n.
Compute
n.

Explanation of Solution
Return on investment (assets): Return on investments (assets) is the financial ratio which determines the amount of net income earned by the business with the use of total assets owned by it. It indicates the magnitude of the company’s earnings with relative to its total assets. Return on investment is calculated as follows:
Compute return on investment of Company AL for 2019 and 2018:
Ratios and Formula | 2019 | 2018 |
Return on investment: |
Table (14)
Note: Since, the beginning total assets for 2018 are not given. So, the total amount of total assets for 2018 is assumed as average total assets.
Working note:
Determine the amount of average total assets for 2019.
Thus, the return on investment of Company AL for 2019 and 2018 are 5.61% and 6.07% respectively.
o.
Compute return on equity of Company AL for 2019 and 2018.
o.

Explanation of Solution
Return on equity: It is a profitability ratio that measures the profit generating ability of the company from the invested money of the shareholders. The formula to calculate the return on equity is as follows:
Compute return on equity of Company AL for 2019 and 2018:
Ratios and Formula | 2019 | 2018 |
Return on equity: |
Table (15)
Note: Since, the beginning stockholders’ equity for 2018 is not given. So, the total amount of stockholders’ equity for 2018 is assumed as average total stockholders’ equity.
Working Note:
Determine the amount of average total stockholders’ equity for 2019.
Thus, the return on equity of Company AL for 2019 and 2018 are 10.52% and 11.23% respectively.
p.
Compute earnings per share of Company AL for 2019 and 2018.
p.

Explanation of Solution
Earnings per Share: Earnings per share help to measure the profitability of a company. Earnings per share are the amount of profit that is allocated to each share of outstanding stock.
Compute earnings per share of Company AL for 2019 and 2018:
Ratios and Formula | 2019 | 2018 |
Earnings per share: |
Table (16)
Thus, the earnings per share of Company AL for 2019 and 2018 are $2.88 per share and $2.96 per share respectively.
q.
Compute book value per share of common stock of Company AL for 2019 and 2018.
q.

Explanation of Solution
Book value per share of common stock: This ratio is a measure of a share of common stock that is used to determine the value of per share based on the equity available to the common stockholders. This ratio is calculated by using the formula:
Compute book value per share of common stock of Company AL for 2019 and 2018:
Ratios and Formula | 2019 | 2018 |
Book value per share of common stock: |
Table (17)
Thus, the book value per share of common stock of Company AL for 2019 and 2018 are $23.62 per share and $21.20 per share respectively.
r.
Compute price-earnings ratio of Company AL for 2019 and 2018.
r.

Explanation of Solution
Price/Earnings Ratio: The price/earnings ratio shows the market value of the amount invested to earn $1 by a company. It is major tool used by investors for making decisions related to the investment in a company.
Compute price-earnings ratio of Company AL for 2019 and 2018:
Ratios and Formula | 2019 | 2018 |
Price-earnings ratio: |
Table (18)
Note: The earnings per share for both years are computed in requirement p.
Thus, the price-earnings ratio of Company AL for 2019 and 2018 are $4.34 and $3.96 respectively.
s.
Compute dividend yield on common stock of Company AL for 2019 and 2018.
s.

Explanation of Solution
Dividend yield on common stock: Dividend yield ratio indicates how much percentage of share prices a company pays out in the form of dividends price. The formula to calculate the dividend yield percentage is as follows:
Compute dividend yield on common stock of Company AL for 2019 and 2018:
Ratios and Formula | 2019 | 2018 |
Dividend yield on common stock: |
Table (19)
Thus, the dividend yield on common stock of Company AL for 2019 and 2018 are 3.68% and 3.91% respectively.
Want to see more full solutions like this?
Chapter 9 Solutions
SURVEY OF ACCOUNTING(LL)>CUSTOM PKG.<
- Activity Based Costing - practice problem Fontillas Instrument, Inc. manufactures two products: missile range instruments and space pressure gauges. During April, 50 range instruments and 300 pressure gauges were produced, and overhead costs of $89,500 were estimated. An analysis of estimated overhead costs reveals the following activities. Activities 1. Materials handling 2. Machine setups Cost Drivers Number of requisitions Number of setups Total cost $35,000 27,500 3. Quality inspections Number of inspections 27,000 $89.500 The cost driver volume for each product was as follows: Cost Drivers Instruments Gauge Total Number of requisitions 400 600 1,000 Number of setups 200 300 500 Number of inspections 200 400 600 Insructions (a) Determine the overhead rate for each activity. (b) Assign the manufacturing overhead costs for April to the two products using activity-based costing.arrow_forwardBodhi Company has three cost pools and two doggie products (leashes and collars). The activity cost pool of ordering has the cost drive of purchase orders. The activity cost pool of assembly has a cost driver of parts. The activity cost pool of supervising has the cost driver of labor hours. The accumulated data relative to those cost drivers is as follows: Expected Use of Estimated Cost Drivers by Product Cost Drivers Overhead Leashes Collars Purchase orders $260,000 70,000 60,000 Parts 400,000 300,000 500,000 Labor hours 300,000 15,000 10,000 $960,000 Instructions: (a) Compute the activity-based overhead rates. (b) Compute the costs assigned to leashes and collars for each activity cost pool. (c) Compute the total costs assigned to each product.arrow_forwardTorre Corporation incurred the following transactions. 1. Purchased raw materials on account $46,300. 2. Raw Materials of $36,000 were requisitioned to the factory. An analysis of the materials requisition slips indicated that $6,800 was classified as indirect materials. 3. Factory labor costs incurred were $55,900, of which $51,000 pertained to factory wages payable and $4,900 pertained to employer payroll taxes payable. 4. Time tickets indicated that $50,000 was direct labor and $5,900 was indirect labor. 5. Overhead costs incurred on account were $80,500. 6. Manufacturing overhead was applied at the rate of 150% of direct labor cost. 7. Goods costing $88,000 were completed and transferred to finished goods. 8. Finished goods costing $75,000 to manufacture were sold on account for $103,000. Instructions Journalize the transactions.arrow_forward
- Chapter 15 Assignment of direct materials, direct labor and manufacturing overhead Stine Company uses a job order cost system. During May, a summary of source documents reveals the following. Job Number Materials Requisition Slips Labor Time Tickets 429 430 $2,500 3,500 $1,900 3,000 431 4,400 $10,400 7,600 $12,500 General use 800 1,200 $11,200 $13,700 Stine Company applies manufacturing overhead to jobs at an overhead rate of 60% of direct labor cost. Instructions Prepare summary journal entries to record (i) the requisition slips, (ii) the time tickets, (iii) the assignment of manufacturing overhead to jobs,arrow_forwardSolve accarrow_forwardSolve fastarrow_forward
- Assume that none of the fixed overhead can be avoided. However, if the robots are purchased from Tienh Inc., Crane can use the released productive resources to generate additional income of $375,000. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Direct materials Direct labor Variable overhead 1A Fixed overhead Opportunity cost Purchase price Totals Make A Buy $ SA Net Income Increase (Decrease) $ Based on the above assumptions, indicate whether the offer should be accepted or rejected? The offerarrow_forwardThe following is a list of balances relating to Phiri Properties Ltd during 2024. The company maintains a memorandum debtors and creditors ledger in which the individual account of customers and suppliers are maintained. These were as follows: Debit balance in debtors account 01/01/2024 66,300 Credit balance in creditors account 01/01/2024 50,600 Sunday credit balance on debtors ledger Goods purchased on credit 724 257,919 Goods sold on credit Cash received from debtors Cash paid to suppliers Discount received Discount allowed Cash purchases Cash sales Bad Debts written off Interest on overdue account of customers 323,614 299,149 210,522 2,663 2,930 3,627 5,922 3,651 277 Returns outwards 2,926 Return inwards 2,805 Accounts settled by contra between debtors and creditors ledgers 1,106 Credit balances in debtors ledgers 31/12/2024. 815 Debit balances in creditors ledger 31/12/2024.698 Required: Prepare the debtors control account as at 31/12/2024. Prepare the creditors control account…arrow_forwardSolnarrow_forward
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage LearningPrinciples of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax CollegeCollege Accounting, Chapters 1-27 (New in Account...AccountingISBN:9781305666160Author:James A. Heintz, Robert W. ParryPublisher:Cengage Learning
- College Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage LearningFinancial AccountingAccountingISBN:9781337272124Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage Learning




