Question

Wiemers Corporation’s comparative balance sheets are presented below.

WIEMERS CORPORATION
Balance Sheets
December 31
2017 2016
Cash $ 4,500 $ 3,200
Accounts receivable (net) 20,800 23,300
Inventory 10,100 7,200
Land 19,500 26,400
Buildings 70,000 70,000
Accumulated depreciation—buildings (14,600 ) (10,600 )
Total $110,300 $119,500
Accounts payable $ 12,700 $ 31,100
Common stock 74,900 68,600
Retained earnings 22,700 19,800
Total $110,300 $119,500
Wiemers’s 2017 income statement included net sales of $110,000, cost of goods sold of $60,800, and net income of $15,000.
Required:
1. Compute the following ratios for 2017.
a. Current ratio.b. Acid-test ratio.c. Accounts receivable turnover.d. Inventory turnover.e. Profit margin

Answer 1

a. Current ratio = 2.79

b. Acid-test ratio = 1.99

c. Accounts receivable turnover = 2.92 times

d. Inventory turnover = 6.02 times

e. Profit margin = 13.64%

Step-by-step explanation:

2017 Ratios

a. Current ratio = Current Assets / Current Liabilities

= ($ 4,500 + $20,800 + $10,100) / $ 12,700

= 2.79

b. Acid-test ratio = Current Assets - Inventory / Current Liabilities

= ($ 4,500 + $20,800) / $ 12,700

= 1.99

c. Accounts receivable turnover = Cost of Sales / Accounts receivable

= $60,800 / 20,800

= 2.92 times

d. Inventory turnover = Cost of Sales / Inventory

= $60,800 / 10,100

= 6.02 times

e. Profit margin = Net Profit / Sales

= $15,000 / $110,000×100

= 13.64%