Question

The financial statements of Ion Corporation include the following items:

Current Year Preceding Year

Balance Sheet:

Cash \( 6,000 \) 8,000

Short-term Investments 4,400 10,700

Net Accounts Receivable 21,600 29,200

Merchandise Inventory 30,800 27,600

Prepaid Expenses 6,000 3,600

Total Current Assets 68,800 79,100

Total Current Liabilities 53,200 37,200

Income Statement:

Net Sales Revenue $ 184,800

Cost of Goods Sold 126,000

Compute the following ratios for the current year:

7. Current ratio

8. Acid-test ratio

9. Inventory turnover

10. Gross profit percentage

Short answer

Answer

Current Ratio- 1.29 times Acid Test ratio= 0.7143 or 71.43%, Inventory Turnover- 4.32 times, Gross Profit Percentage= 31.8%

Step-by-step solution

Definitions

Current ratio- The current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year

Acid Test Ratio- The acid test, orquick ratio, shows if a company has, or can get, enough cash to pay its immediate liabilities, such as short-term debt.

Inventory Turnover- Inventory turnover is the rate that which inventory stock is sold, or used, and replaced. The inventory turnover ratio iscalculated by dividing the cost of goods by the average inventory for the same period. A higher ratio tends to point to strong sales and a lower one too weak sale

Gross Profit Percentage- The gross profit margin is a metric used to assess a firm's financial health and is equal to the revenue less the cost of goods sold as a percent of total revenue.

Calculations

Current Ratio- Current Assets / Current Liabilities

= 68,800/ 53,200

=1.29 times

Acid Test Ratio- (Current Assets – Inventory)/Current Liabilities

=(68,800- 30,800)/53,200

= 0.7143 or 71.43%

Inventory Turnover- Cost of Goods Sold/ Average Inventory

= 126,000/[(30,800+27,600)]/2

=126,000/29,200

=4.32 times

Gross Profit Percentage= (Revenue-COGS) /Revenue

= (184,800- 126,000)/184,800

=0.318 or 31.8%