he 2021 income statement of Adrian Express reports sales of $16,281,000, cost of goods sold of $9,851,500, and net income of $1,610,000. Balance sheet information is provided in the following table. ADRIAN EXPRESS Balance Sheets December 31, 2021 and 2020 2021 2020 Assets Current assets: Cash $ 610,000 $ 770,000 Accounts receivable 1,420,000 1,010,000 Inventory 1,820,000 1,410,000 Long-term assets 4,810,000 4,250,000 Total assets $ 8,660,000 $ 7,440,000 Liabilities and Stockholders' Equity Current liabilities $ 2,010,000 $ 1,670,000 Long-term liabilities 2,310,000 2,410,000 Common stock 1,990,000 1,990,000 Retained earnings 2,350,000 1,370,000 Total liabilities and stockholders' equity $ 8,660,000 $ 7,440,000 Industry averages for the following four risk ratios are as follows: Average collection period 25 days Average days in inventory 60 days Current ratio 2 to 1 Debt to equity ratio 50% Required: 1. Calculate the four risk ratios listed above for Adrian Express in 2021. (Use 365 days in a year. Round your answers to 1 decimal place.)

ADRIAN EXPRESS

1. Average Collection Period = 365/Average Receivable Turnover Ratio

= 365/13.4

= 27.2 days

2. Average days in inventory = Average Inventory/Cost of goods sold * 365

= $1,615,000/$9,851,500 * 365

= 59.8 days

3. Current Ratio = Current Assets/Current Liabilities

= $3,850,000/$2,010,000

= 1.9 to 1

4. Debt to Equity Ratio = Total Debts/Equity

= $4,320,000/$4,340,000 * 100

= 99.5%

Explanation:

a) Data and Calculations:

ADRIAN EXPRESS

Income Statement for the year ended December 31, 2021:

Sales =                       $16,281,000

Cost of goods sold = $9,851,500

Net Income =              $1,610,000

ADRIAN EXPRESS

Balance Sheets December 31, 2021 and 2020

                                                                            2021             2020

Assets

Current assets:

Cash                                                               $ 610,000     $ 770,000

Accounts receivable                                      1,420,000       1,010,000

Inventory                                                        1,820,000       1,410,000

Long-term assets                                          4,810,000     4,250,000

Total assets                                               $ 8,660,000  $ 7,440,000

Liabilities and Stockholders' Equity

Current liabilities                                        $ 2,010,000  $ 1,670,000

Long-term liabilities                                       2,310,000     2,410,000

Common stock                                              1,990,000     1,990,000

Retained earnings                                        2,350,000     1,370,000

Total liabilities and stockholders' equity $ 8,660,000 $ 7,440,000

Industry averages for the following four risk ratios are as follows:

Average collection period 25 days  

Average days in inventory 60 days

Current ratio 2 to 1

Debt to equity ratio 50%

Average accounts receivable = ($1,420,000 + 1,010,000)/2 = $1,215,000

Average Receivable Turnover Ratio = Net Sales/Average Receivable

= $16,281,000/$1,215,000 = 13.4

Average Collection Period = 365/Average Receivable Turnover Ratio

= 365/13.4

= 27.2 days

Average Inventory = ($1,820,000 + 1,410,000)/2 = $1,615,000

Average days in inventory = Average Inventory/Cost of goods sold * 365

= $1,615,000/$9,851,500 * 365

= 59.8 days

Current Assets = Total assets - Long-term assets

= $8,660,000 - $4,810,000

= $3,850,000

Current Ratio = Current Assets/Current Liabilities

= $3,850,000/$2,010,000

= 1.9 to 1

Total debts = current liabilities + long-term liabilities

= $2,010,000 + $2,310 = $4,320,000

Total Equity = Common Stock + Retained Earnings

= $1,990,000 + $2,350,000 = $4,340,000

Debt to Equity Ratio = Total Debts/Equity

= $4,320,000/$4,340,000 * 100

= 99.5%

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