(Ratio Computations and Effect ofTransactions)
Presented below is information related to Carver Inc.
CARVER INC.
Balance Sheet
December 31, 2007
Cash$45,000Notes payable (short-term)$50,000
Receivables$110,000Accounts payable32,000
Less: Allowance
15,000
95,000Accrued liabilities5,000
Inventories170,000Capital stock (par $5)260,000
Prepaid insurance8,000Retained earnings141,000
Land20,000
Equipment (net)
150,000
$488,000
$488,000
CARVER INC.
Income Statement
For the year ended December31, 2007
Sales$1,400,000
Cost of goods sold
Inventory, Jan. 1, 2007$200,000
Purchases
790,000
Cost of goods available forsale990,000
Inventory, Dec. 31,2007
170,000
Cost of goods sold
820,000
Gross profit on sales580,000
Operating expenses
170,000
Net income
$410,000
Instructions
(a) Compute the following ratios orrelationships of Carver Inc. Assume that the ending accountbalances are representative unless the information providedindicates differently. (Round answers to 2 decimalplaces.)
Current ratio. times
Inventory turnover. times
Receivables turnover. times
Earnings per share. $
Profit margin on sales. %
Rate of return on assets on December 31, 2007. %
(b) Indicate for each of the followingtransactions whether the transaction would improve, weaken, or haveno effect on the current ratio of Carver Inc. at December 31,2007.
Write off an uncollectible account receivable, $2,200.
Purchase additional capital stock for cash.
Pay $40,000 on notes payable (short-term).
Collect $23,000 on accounts receivable.
Buy equipment on account.
Give an existing creditor a short-term note in settlement ofaccount.
Answers: 2
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(Ratio Computations and Effect ofTransactions)
Presented below is information related to Carver Inc...
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