Question

SUNLAND COMPANY

Income Statements
For the Years Ended December 31
2020 2021
Net sales $2,178,400 $2,030,000
Cost of goods sold 1,207,000 1,187,080
Gross profit 971,400 842,920
Selling and administrative expenses 590,000 565,220
Income from operations 381,400 277,700
Other expenses and losses
Interest expense 25,960 23,600
Income before income taxes 355,440 254,100
Income tax expense 106,632 76,230
Net income $ 248,808 $ 177,870
SUNLAND COMPANY
Balance Sheets
December 31
Assets 2022 2021
Current assets
Cash $ 70,918 $ 75,756
Debt investments (short-term) 87,320 59,000
Accounts receivable 139,004 121,304
Inventory 148,680 136,290
Total current assets 445,922 392,350
Plant assets (net) 765,820 613,954
Total assets $1,211,742 $1,006,304
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable $ 188,800 $171,572
Income taxes payable 51,330 49,560
Total current liabilities 240,130 221,132
Bonds payable 259,600 236,000
Total liabilities 499,730 457,132
Stockholders’ equity
Common stock ($5 par) 342,200 354,000
Retained earnings 369,812 195,172
Total stockholders’ equity 712,012 549,172
Total liabilities and stockholders’ equity$1,211,742 $1,006,304
All sales were on account. Net cash provided by operating activities for 2022 was $259,600. Capital expenditures were $160,480, and cash dividends were $74,168.
Compute the following ratios for 2022. (Round all answers to 2 decimal places, e.g. 1.83 or 1.83%.)
(a) Earnings per share
$enter earnings per share in dollars
(b) Return on common stockholders’ equity
enter return on common stockholders’ equity in percentages %
(c) Return on assets
enter return on assets in percentages
%
(d) Current ratio
enter current ratio
(e) Accounts receivable turnover
enter accounts receivable turnover in times
(f) Average collection period
enter average collection period in days
(g) Inventory turnover
enter inventory turnover in times
(h) Days in inventory
enter days in inventory
(i) Times interest earned
enter times interest earned
(j) Asset turnover
enter asset turnover in times
(k) Debt to assets ratio
enter debt to assets ratio in percentages
(l) Free cash flow
$enter free cash flow in dollars

Answer 1

a) $3.57

(b) Return on common stockholders’ equity = 39.46%

(c) Return On Assets = 22.43%

(d) Current Ratio = 1.86 times

(e) Account Receivables Turnover Ratio = 16.74 times

(f) Average collection period = 21.8 days

(g) Inventory Turnover = 8.47 times

(h) Days in inventory = 43.09 days

(i) Times interest earned = 14.69 times

(j) Asset turnover = 1.96 times

(k) Debt to assets ratio = 41.24%

(l) Free cash flow = $24,952

Step-by-step explanation:

(a) Earnings per share

Net income = $248,808

Beginning number of shares = Beginning Common stock / Par value = $354,000 / $5 = 70,800

Ending number of shares = Ending Common stock / Par value = $342,200 / $5 = = 68,440

Average Number of Shares Outstanding = (Beginning number of shares + Ending number of shares) / 2 = (68,440 + 70,800) / 2 = 69,620

Earning Per Shares = Net Income/ Average Number of Shares Outstanding = $248,808 / 69,620 = $3.57

(b) Return on common stockholders’ equity

Average Stockholders Equity = (Beginning Stockholders Equity + Ending Stockholders Equity) / 2 = ($549,172 + $712,012) / 2 = $630,592

Return on Stockholders Equity = Net Income / Average Stockholders Equity = $248,808 / $630,592 = 0.3946, or 39.46%

(c) Return on assets

Average total assets = (Ending total assets + Beginning total assets) / 2 = ($1,211,742 + 1,006,304) / 2 = $1,109,023

Return On Assets = Net Income / Average total assets = $248,808 / $1,109,023 = 0.2243, or 22.43%

(d) Current ratio

Current Ratio = Current Assets / Current Liabilities = $445,922 / $240,130 = 1.86 times

(e) Accounts receivable turnover

Average Account Receivables = (Beginning Account Receivables + Ending Account Receivables) / 2 = ($139,004 + $121,304) / 2 = $130,154

Account Receivables Turnover Ratio = Sales / Average Account Receivables = $2,178,400 / $130,154 = 16.74 times

(f) Average collection period

Average collection period = 365 / Account Receivables turnover ratio = 365 days /16.74 = 21.8 days

(g) Inventory turnover

Average Inventory = (Beginning inventory + Ending inventory) / 2 = ($148,680 + $136,290) / 2 = $142,485

Inventory Turnover = Cost of goods sold / average inventory = $1,207,000 / $142,485 = 8.47 times

(h) Days in inventory

Days in inventory = 365/ inventory turnover ratio = 365 days / 8.47 = 43.09 days

(i) Times interest earned

Times Interest Earned = Earnings before interest, taxes, depreciation, and amortization / Interest expenses = Income from operations / Interest expenses = $381,400 / $25,960 = 14.69 times

(j) Asset turnover

Asset turnover = Net sales / Average total assets = 2,178,400 / $1,109,023 = 1.96 times

(k) Debt to assets ratio

Debt to Asset Ratio = Total Debt / Total Assets = $499,730 / $1,211,742 = 0.4124, or 41.24%

(l) Free cash flow

Free cash flow = Net cash provided by operating activities - Capital expenditures - Cash dividends = $259,600- $160,480 - $74,168 = $24,952