Question

Income statements and balance sheets data for Virtual Gaming Systems are provided below.

VIRTUAL GAMING SYSTEMS
Income Statements
For the year ended December 31
2019 2018
Net sales $3,465,000 $2,991,000
Cost of goods sold 2,471,000 1,941,000

Gross profit 994,000 1,050,000
Expenses:
Operating expenses 946,000 849,000
Depreciation expense 21,000 22,500
Loss on sale of land 0 7,100
Interest expense 13,500 10,500
Income tax expense 7,100 43,500

Total expenses 987,600 932,600

Net income $ 6,400 $ 117,400

VIRTUAL GAMING SYSTEMS
Balance Sheets
December 31
2019 2018 2017
Assets
Current assets:
Cash $ 196,500 $177,000 $135,000
Accounts receivable 70,500 72,000 51,000
Inventory 120,500 96,000 126,000
Prepaid rent 13,100 11,100 4,920
Long-term assets:
Investment in bonds 96,000 96,000 0
Land 291,000 201,000 231,000
Equipment 291,000 261,000 201,000
Less: Accumulated depreciation (76,500) (55,500) (33,000)

Total assets $1,002,100 $858,600 $715,920

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 274,800 $ 57,000 $91,220
Interest payable 6,300 4,200 2,100
Income tax payable 11,100 10,500 13,100
Long-term liabilities:
Notes payable 310,000 276,000 216,000
Stockholders' equity:
Common stock 291,000 291,000 291,000
Retained earnings 108,900 219,900 102,500

Total liabilities and stockholders’ equity $1,002,100 $858,600 $715,920
References
Section BreakProblem 12-6A Use ratios to analyze risk and profitability (LO12-3, 12-4)
13.
value:
20.00 points
Required information

You did not receive full credit for this question in a previous attempt

Required:
Calculate the following risk ratios for 2018 and 2019: (Round your answers to 1 decimal place.)
- receivables turnover ratio
- Inventory Turnover ratio
- Current Ratio
- Debt to equity ratio

Answer 1

The financial risk ratios for Virtual Gaming Systems for 2019 and 2018 have been calculated, including the receivables turnover ratio, inventory turnover ratio, current ratio, and debt to equity ratio using the provided financial data.

Step-by-step explanation:

To calculate the requested risk ratios for Virtual Gaming Systems for 2018 and 2019, four different financial ratios will be used. The formulas for these ratios are as follows:

• Receivables Turnover Ratio = Net Credit Sales / Average Accounts Receivable
• Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory
• Current Ratio = Current Assets / Current Liabilities
• Debt to Equity Ratio = Total Liabilities / Total Stockholders' Equity

For 2019,
- Receivables Turnover Ratio = $3,465,000 / (($70,500+$72,000)/2) = 48.5
- Inventory Turnover Ratio = $2,471,000 / (($120,500+$96,000)/2) = 23.9
- Current Ratio = ($196,500 + $70,500 + $120,500 + $13,100) / ($274,800 + $6,300 + $11,100) = 1.3
- Debt to Equity Ratio = ($310,000 + $274,800 + $6,300 + $11,100) / $291,000 = 2.1

For 2018,
- Receivables Turnover Ratio = $2,991,000 / (($72,000+$51,000)/2) = 47.6
- Inventory Turnover Ratio = $1,941,000 / (($96,000+$126,000)/2) = 18.2
- Current Ratio = ($177,000 + $72,000 + $96,000 + $11,100) / ($57,000 + $4,200 + $10,500) = 3.7
- Debt to Equity Ratio = ($276,000 + $57,000 + $4,200 + $10,500) / $291,000 = 1.2