Question

Income statement and balance sheet data for Great Adventures, Inc., are provided below.

GREAT ADVENTURES, INC.
Income Statement
For the year ended December 31, 2022
Net sales revenues $ 176,690 Interest revenue 240 Expenses: Cost of goods sold $ 39,100 Operating expenses 58,720 Depreciation expense 17,850 Interest expense 8,281 Income tax expense 15,100 Total expenses 139,051 Net income $ 37,879 GREAT ADVENTURES, INC.
Balance Sheets
December 31, 2022 and 2021
2022 2021 Assets Current assets: Cash $ 231,844 $ 64,620 Accounts receivable 48,680 0 Inventory 8,200 0 Other current assets 1,020 4,980 Long-term assets: Land 620,000 0 Buildings 830,000 0 Equipment 74,360 46,000 Accumulated depreciation (26,450 ) (8,300 ) Total assets $ 1,787,654 $ 107,300 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 22,000 $ 3,040 Interest payable 1,050 810 Income tax payable 15,100 14,120 Other current liabilities 24,600 0 Notes payable (current) 60,137 0 Notes payable (long-term) 586,478 31,200 Stockholders’ equity: Common stock 132,000 24,080 Paid-in capital 1,013,200 0 Retained earnings 59,089 34,050 Treasury stock (126,000 ) 0 Total liabilities and stockholders’ equity $ 1,787,654 $ 107,300 As you can tell from the financial statements, 2022 was an especially busy year. Tony and Suzie were able to use the money received from borrowing and the issuance of stock to buy land and begin construction of cabins, dining facilities, ropes course, and the outdoor swimming pool. They even put in a baby pool to celebrate the birth of their first child.
Required:
1. Calculate the following risk ratios for 2022. (Use 365 days in a year. Round your intermediate calculations and final answers to 1 decimal place.
a. Receivables turnover ratio. (Hint: Use net sales revenues for net credit sales)
b. Average collection period.
c. Inventory
2. Calculate the following profitability ratios for 2022. (Use 365 days in a year. Round your intermediate calculations and final answers to 1 decimal place.)

Answer 1

To calculate the receivables turnover ratio, we will need to divide the net credit sales by the average accounts receivable. Net credit sales can be calculated by subtracting the cost of goods sold from the net sales revenues. The average accounts receivable can be calculated by taking the sum of the accounts receivable at the beginning and end of the year, and dividing it by 2.

Net credit sales = Net sales revenues - Cost of goods sold

= $176,690 - $39,100

= $137,590

Average accounts receivable = (Accounts receivable at beginning of year + Accounts receivable at end of year) / 2

= ($0 + $48,680) / 2

= $24,340

Receivables turnover ratio = Net credit sales / Average accounts receivable

= $137,590 / $24,340

= 5.6

To calculate the average collection period, we will need to divide the number of days in a year by the receivables turnover ratio.

Average collection period = Number of days in a year / Receivables turnover ratio

= 365 / 5.6

= 65 days

To calculate the inventory turnover ratio, we will need to divide the cost of goods sold by the average inventory. The average inventory can be calculated by taking the sum of the inventory at the beginning and end of the year, and dividing it by 2.

Average inventory = (Inventory at beginning of year + Inventory at end of year) / 2

= ($0 + $8,200) / 2

= $4,100

Inventory turnover ratio = Cost of goods sold / Average inventory

= $39,100 / $4,100

= 9.5

To calculate the profit margin, we will need to divide the net income by the net sales revenues.

Profit margin = Net income / Net sales revenues

= $37,879 / $176,690

= 0.21 or 21%

To calculate the return on assets, we will need to divide the net income by the average total assets. The average total assets can be calculated by taking the sum of the total assets at the beginning and end of the year, and dividing it by 2.

Average total assets = (Total assets at beginning of year + Total assets at end of year) / 2

= ($107,300 + $1,787,654) / 2

= $947,477

Return on assets = Net income / Average total assets

= $37,879 / $947,477

= 0.04 or 4%

To calculate the return on equity, we will need to divide the net income by the average stockholders' equity. The average stockholders' equity can be calculated by taking the sum of the stockholders' equity at the beginning and end of the year, and dividing it by 2.

Average stockholders' equity = (Stockholders' equity at beginning of year + Stockholders' equity at end of year) / 2

= ($107,300 + $1,787,654) / 2

= $947,477

Return on equity = Net income / Average stockholders' equity

= $37,879 / $947,477

= 0.04 or 4%