Accounting

Please refer to Table 4-2 for the following questions on Chapter 4 (14-20).

Table 4-2

Drummond Company

Balance Sheet

Assets:    
Cash and marketable securities   $400,000
Accounts receivable   1,415,000
Inventories   1,847,500
Prepaid expenses   24,000
Total current assets   3,686,500
Fixed assets   2,800,000  
Less: accum. depr. (1,087,500)  
Net fixed assets   1,712,500
Total assets   $5,399,000
     
Liabilities:    
Accounts payable   $600,000
Notes payable 875,000
Accrued taxes   92,000
Total current liabilities   $1,567,000
Long-term debt   900,000
Common Stock (100,000 shares)   700,000
Retained Earnings   2,232,000
Total liabilities and owner’s equity   $5,399,000
     
Net sales (all credit)   $6,375,000
Less: Cost of goods sold   (4,375,000)
Selling and administrative expense   (1,000,000)
Depreciation expense   (135,000)
Interest expense   (100,000)
Earnings before taxes   $765,000
Income taxes   (306,000)
Net income   $459,000
     

 

14) Based on the information in Table 4-2, the current ratio is

A) 2.97.

B) 2.46.

C) 2.35.

D) 2.23.

 

 

15) Based on the information in Table 4-2, the acid-test ratio is

A) 1.17.

B) 1.33.

C) 1.39.

D) 2.15.

 

 

16) Based on the information in Table 4-2, the average collection period is

A) 70 days.

B) 81 days.

C) 89 days.

D) 127 days.

 

 

17) Based on the information in Table 4-2, the debt ratio is

A) 28.12%.

B) 34.74%.

C) 45.69%.

D) 42.03%.

 

 

18) Based on the information in Table 4-2, the return on equity is

A) 19.33%.

B) 18.47%.

C) 16.66%.

D) 15.65%.

 

 

19) Based on the information in Table 4-2, and assuming the company’s stock price is $50 per share, the P/E ratio is

A) 10.89.

B) 14.33.

C) 24.44.

D) 27.50.

 

 

20) Based on the information in Table 4-2, the times interest earned ratio is

A) 11.48.

B) 5.25.

C) 4.88.

D) 8.65.

Solution:

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