ACC 205 Week 5 Assignment Financial Ratios
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Description
Financial Ratios. Please complete each of the exercises below in a word document. Save the document,
and submit it in the appropriate week using the Assignment Submission button.
1. Liquidity Ratios. Edison, Stagg, and Thornton have the following financial information at the close of business on July 10:
Edison Stagg Thornton
Cash $6,000 $5,000 $4,000
Short-term investments 3,000 2,500 2,000
Accounts receivable 2,000 2,500 3,000
Inventory 1,000 2,500 4,000
Prepaid expenses 800 800 800
Accounts payable 200 200 200
Notes payable: short-term 3,100 3,100 3,100
Accrued payables 300 300 300
Long-term liabilities 3,800 3,800 3,800
Instructions
a. Compute the current and quick ratios for each of the three companies. (Round calculations to two
decimal places.) Which firm is the most liquid? Why?
2. Computation and evaluation of activity ratios. The following data relate to Alaska Products, Inc.:
20X5 20X4
Net credit sales $832,000 $760,000
Cost of goods sold 530,000 400,000
Cash, Dec. 31 125,000 110,000
Accounts receivable, Dec. 31 205,000 156,000
Average Inventory, Dec. 31 70,000 50,000
Accounts payable, Dec. 31 115,000 108,000
Instructions
a. Compute the accounts receivable and inventory turnover ratios for 20X5. Alaska rounds all
calculations to two decimal places
3. Profitability ratios, trading on the equity
Digital Relay has both preferred and common stock outstanding. The company reported the following
information for 20X7:
Net sales $1,750,000
Interest expense 120,000
Income tax expense 80,000
Preferred dividends 25,000
Net income 130,000
Average assets 1,200,000
Average common stockholders' equity 500,000
Instructions
a. Compute the gross profit margin ratio, the return on equity and...