Just Dew It Corporation reports the following balance sheet information for 2014 and 2015.

Problem 3-17 Calculating Financial Ratios [LO2]

Just Dew It Corporation reports the following balance sheet information for 2014 and 2015.

 

JUST DEW IT CORPORATION 2014 and 2015 Balance Sheets
Assets									Liabilities and Owners’ Equity
	2014				2015					2014				2015
Current assets									Current liabilities
Cash	$	11,025			$	11,970			Accounts payable	$	43,750			$	47,250
Accounts receivable		22,225				26,670			Notes payable		24,325				24,780
Inventory		44,625				51,450
Total	$	77,875			$	90,090			Total	$	68,075			$	72,030
									Long-term debt	$	35,000			$	21,000
									Owners’ equity
									Common stock and paid-in surplus	$	42,000			$	42,000
									Retained earnings		204,925				284,970
Net plant and equipment	$	272,125			$	329,910			Total	$	246,925			$	326,970
Total assets	$	350,000			$	420,000			Total liabilities and owners’ equity	$	350,000			$	420,000

 

Based on the balance sheets given for Just Dew It:

   

a.	Calculate the current ratio for each year. (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16.)

   

	2014	2015
Current ratio	times	times

  

b.	Calculate the quick ratio for each year. (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16.)

   

	2014	2015
Quick ratio	times	times

 

c.	Calculate the cash ratio for each year. (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16.)

   

	2014	2015
Cash ratio	times	times

 

d.	Calculate the NWC to total assets ratio for each year. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

    

	2014	2015
NWC ratio	%	%

 

e.	Calculate the debt–equity ratio and equity multiplier for each year. (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16.)

 

	2014	2015
Debt-equity ratio	times	times
Equity multiplier

   

f.	Calculate the total debt ratio and long-term debt ratio for each year. (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16.)

 

	2014	2015
Total debt ratio	times	times
Long-term debt ratio	times	times

Explanation:

 a.

Current ratio	=	Current assets / Current liabilities
Current ratio 2014	=	$77,875 / $68,075 = 1.14 times
Current ratio 2015	=	$90,090 / $72,030 = 1.25 times

 
b.

Quick ratio	=	(Current assets – Inventory) / Current liabilities
Quick ratio 2014	=	($77,875 − 44,625) / $68,075 = .49 times
Quick ratio 2015	=	($90,090 − 51,450) / $72,030 = .54 times

 
c. 

Cash ratio	=	Cash / Current liabilities
Cash ratio 2014	=	$11,025 / $68,075 = .16 times
Cash ratio 2015	=	$11,970 / $72,030 = .17 times

 
d.

NWC ratio	=	NWC / Total assets
NWC ratio 2014	=	($77,875 – 68,075) / $350,000 = .0280, or 2.80%
NWC ratio 2015	=	($90,090 − 72,030) / $420,000 = .0430, or 4.30%

 
e.

Debt-equity ratio	=	Total debt / Total equity
Debt-equity ratio 2014	=	($68,075 + 35,000) / $246,925 = .42 times
Debt-equity ratio 2015	=	($72,030 + 21,000) / $326,970 = .28 times

   

Equity multiplier	=	1 + D/E
Equity multiplier 2014	=	1 + .42 = 1.42
Equity multiplier 2015	=	1 + .28 = 1.28

 
f.

Total debt ratio	=	(Total assets – Total equity) / Total assets
Total debt ratio 2014	=	($350,000 − 246,925) / $350,000 = .29 times
Total debt ratio 2015	=	($420,000 − 326,970) / $420,000 = .22 times

 

Long-term debt ratio	=	Long-term debt / (Long-term debt + Total equity)
Long-term debt ratio 2014	=	$35,000 / ($35,000 + 246,925) = .12 times
Long-term debt ratio 2015	=	$21,000 / ($21,000 + 326,970) = .06 times

Problem 21-1A Contribution margin income statement and contribution margin ratio LO A1 The following costs result from the production and sale of 1,000 drum sets manufactured by Tom Thompson Company for the year ended December 31, 2013. The drum sets sell for $500 each. The company has a 25% income tax rate.

Problem 21-1A Contribution margin income statement and contribution margin ratio LO A1

The following costs result from the production and sale of 1,000 drum sets manufactured by Tom Thompson Company for the year ended December 31, 2013. The drum sets sell for $500 each. The company has a 25% income tax rate.

    

Variable production costs
Plastic for casing	$	17,000
Wages of assembly workers		82,000
Drum stands		26,000
Variable selling costs
Sales commissions		15,000
Fixed manufacturing costs
Taxes on factory		5,000
Factory maintenance		10,000
Factory machinery depreciation		40,000
Fixed selling and administrative costs
Lease of equipment for sales staff		10,000
Accounting staff salaries		35,000
Administrative management salaries		125,000

  

Required:

1.	Prepare a contribution margin income statement for the company.
	Explanation: 1. Sales ($500 × 1,000) = $500,000 Income tax (135,000 × 25%) = $33,750

Exercise 21-12 Income reporting and break-even analysis LO C2 Blanchard Company manufactures a single product that sells for $180 per unit and whose total variable costs are $135 per unit. The company’s annual fixed costs are $562,500. 12,500 units were sold. (1) Prepare a contribution margin income statement for Blanchard Company at the break-even point.

Exercise 21-12 Income reporting and break-even analysis LO C2

Blanchard Company manufactures a single product that sells for $180 per unit and whose total variable costs are $135 per unit. The company’s annual fixed costs are $562,500. 12,500 units were sold.

 

(1)

Prepare a contribution margin income statement for Blanchard Company at the break-even point. Explanation: (1)  Sales: (12,500 × $180) = $2,250,000 Variable costs: (12,500 × $135) = $1,687,500 Contribution margin: (12,500 × $45) = $562,500   (2) Sales (in dollars) to break even with increased fixed costs       (Original fixed costs + Additional fixed costs) Break-even  =     Contribution margin ratio      =  ($562,500 + $135,000) / 25% = $2,790,000