Question

The following information pertains to Wamser Company:

Cash $22,500
Accounts receivable 125,000
Inventory 74,500
Plant assets (net) 381,000
Total assets $603,000
Accounts payable $75,000
Accrued taxes and expenses payable 25,000
Long-term debt 49,500
Common stock ($10 par) 155,000
Paid-in capital in excess of par 90,000
Retained earnings 208,500
Total equities $603,000
Net sales (all on credit) $800,500
Cost of goods sold 604,500
Net income 81,500

Compute the following:
a. Current ratio
b. Inventory turnover
c. Accounts receivable turnover
d. Book value per share
e. Earnings per share
f. Debt to assets
g. Profit margin on sales
h. Return on common stock equity

Answer 1

a. Current ratio = 2.22

b. Inventory turnover = 10.74 times

c. Accounts receivable turnover = 0.16 times

d. Book value per share = $30.23 per share

e. Earnings per share = $5.43 per share

f. Debt to assets = 0.2479, or 24.79%

g. Profit margin on sales = 10.18%

h. Return on common stock equity = 0.5258, or 52.58%

Step-by-step explanation:

a. Current ratio

Current assets = Cash + Accounts receivable + Inventory = $22,500 + $125,000 + $74,500 = $222,000

Current liabilities = Accounts payable + Accrued taxes and expenses payable = $75,000 + $25,000 = $100,000

Current ratio = Current assets / Current liabilities = $222,000 / $100,000 = 2.22

b. Inventory turnover

Inventory turnover = Net sales / Inventory = $800,500 / $74,500 = 10.74 times

c. Accounts receivable turnover

Accounts receivable turnover = Accounts receivable / Net credit sales = $125,000 / $800,500 = 0.16 times

d. Book value per share

Shareholder’s equity = Common stock ($10 par) + Paid-in capital in excess of par + Retained earnings = $155,000 + $90,000 + $208,500 = $453,500

Number common shares outstanding = Common stock / Par value = $155,000 / $10 = 15,000

Book value per share = Shareholder’s equity / Number common shares outstanding = $453,500 / 15,000 = $30.23 per share

e. Earnings per share

Earnings per share = Net income / Number common shares outstanding = $81,500 / 15,000 = $5.43 per share

f. Debt to assets

Total debts = Accounts payable + Accrued taxes and expenses payable + Long-term debt = $75,000 + $25,000 + $49,500 = $149,500

Total assets = $603,000

Debt to assets = Total debts / Total assets = $149,500 / $603,000 = 0.2479, or 24.79%

g. Profit margin on sales

Profit margin on sales = Net income / Net sales = $81,500 / $800,500 = 0.1018, or 10.18%

h. Return on common stock equity

Return on common stock equity = Net income / Common stock = $81,500 / $155,000 = 0.5258, or 52.58%