70.2K

Verified Solution

Link Copied!

Summary information from the financial statements of two companies competing in the same industry follows.

		Fender Company		Gibson Company				Fender Company		Gibson Company
Data from the current year-end balance sheets						Data from the current years income statement
Assets						Sales	$	790,000	$	912,200
Cash	$	20,000	$	30,000		Cost of goods sold		590,100		636,500
Accounts receivable, net		39,400		56,400		Interest expense		8,800		10,000
Current notes receivable (trade)		10,100		8,000		Income tax expense		15,185		25,183
Merchandise inventory		84,840		130,500		Net income		175,915		240,517
Prepaid expenses		6,100		7,200		Basic earnings per share		4.89		5.84
Plant assets, net		310,000		307,400		Cash dividends per share		3.79		3.92
Total assets	$	470,440	$	539,500
						Beginning-of-year balance sheet data
Liabilities and Equity						Accounts receivable, net	$	31,800	$	50,200
Current liabilities	$	62,340	$	101,300		Current notes receivable (trade)		0		0
Long-term notes payable		80,800		101,000		Merchandise inventory		59,600		107,400
Common stock, $5 par value		180,000		206,000		Total assets		398,000		362,500
Retained earnings		147,300		131,200		Common stock, $5 par value		180,000		206,000
Total liabilities and equity	$	470,440	$	539,500		Retained earnings		107,825		52,187

1.1 For both companies compute the (a) current ratio, (b) acid-test ratio, (c) accounts (including notes) receivable turnover, (d) inventory turnover, (e) days sales in inventory, and (f) days sales uncollected. (Do not round intermediate calculations.)

	(a) Current Ratio Company Choose Numerator: / Choose Denominator: = Current Ratio / = Current ratio Fender / = to 1 Gibson / = to 1

	(b) Acid-Test Ratio Company Choose Numerator: Choose Denominator: = Acid-Test Ratio + + / = Acid-test ratio Fender + + / = to 1 Gibson + + / to 1

	(c) Accounts Receivable Turnover Company Choose Numerator: / Choose Denominator: = Accounts Receivable Turnover / = Accounts receivable turnover Fender / = times Gibson / = times

	(d) Inventory Turnover Company Choose Numerator: / Choose Denominator: = Inventory Turnover / = Inventory turnover Fender / = times Gibson / = times

	(e) Days Sales in Inventory Company Choose Numerator: / Choose Denominator: x Days = Days Sales in Inventory / x = Days sales in inventory Fender / x = days Gibson / x = days

	(f) Days' Sales Uncollected Company Choose Numerator: / Choose Denominator: x Days = Days' Sales Uncollected / x = Days' sales uncollected Fender / x = days Gibson / x = days

1.2 Identify the company you consider to be the better short-term credit risk

	Fender company
	Gibson company

1.2 Identify the company you consider to be the better short-term credit risk

	Fender company
	Gibson company

Answer & Explanation Solved by verified expert

See Answer