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McCord Corporation - Ratio Analysis for Financial Statements

Selected year-end financial statements of McCord Corporation follow. (Note: All sales are on credit;
selected balance sheet amounts at December 31, 2004, were inventory, $32,400; total assets, $182,400;
common stock, $90,000; and retained earnings, $31,300.)

excel
mhhe.com/larson

McCORD CORPORATION
Income Statement
For Year Ended December 31, 2005
Sales . . . . . . . . . . . . . . . . . . . $348,600
Cost of goods sold . . . . . . . . 229,150
Gross profit . . . . . . . . . . . . . 119,450
Operating expenses . . . . . . . . 52,500
Interest expense . . . . . . . . . . 3,100
Income before taxes . . . . . . . 63,850
Income taxes . . . . . . . . . . . . . 15,800
Net income . . . . . . . . . . . . . . $ 48,050
excel
mhhe.com/larson
McCORD CORPORATION
Balance Sheet
December 31, 2005
Assets Liabilities and Equity
Cash . . . . . . . . . . . . . . . . . . . . . . $ 9,000 Accounts payable . . . . . . . . . . . . . . . . . . $ 16,500
Short-term investments . . . . . . . . . 7,400 Accrued wages payable . . . . . . . . . . . . . . 2,200
Accounts receivable, net . . . . . . . . 28,200 Income taxes payable . . . . . . . . . . . . . . . . 2,300
Notes receivable (trade)* . . . . . . . . 3,500 Long-term note payable, secured
Merchandise inventory . . . . . . . . . . 31,150 by mortgage on plant assets . . . . . . . . . 62,400
Prepaid expenses . . . . . . . . . . . . . . 1,650 Common stock, $1 par value . . . . . . . . . . 90,000
Plant assets, net . . . . . . . . . . . . . . . 152,300 Retained earnings . . . . . . . . . . . . . . . . . . 59,800
Total assets . . . . . . . . . . . . . . . . . . $233,200 Total liabilities and equity . . . . . . . . . . . . . $233,200

Required
Compute the following: (1) current ratio, (2) acid-test ratio, (3) days' sales uncollected, (4) inventory
turnover, (5) days' sales in inventory, (6) ratio of pledged assets to secured liabilities, (7) times interest
earned, (8) profit margin ratio, (9) total asset turnover, (10) return on total assets, and (11) return
on common stockholders' equity.
Check Acid-test ratio, 2.3 to 1;
Inventory turnover, 7.2

Solution Preview

Selected year-end financial statements of McCord Corporation follow. (Note: All sales are on credit; selected balance sheet amounts at December 31, 2004, were inventory, $32,400; total assets, $182,400; common stock, $90,000; and retained earnings, $31,300.)
excel
mhhe.com/larson
McCORD CORPORATION
Income Statement
For Year Ended December 31, 2005
Sales . . . . . . . . . . . . . . . . . . . $348,600
Cost of goods sold . . . . . . . . 229,150
Gross profit . . . . . . . . . . . . . 119,450
Operating expenses . . . . . . . . 52,500
Earnings before interest and tax 66,950
Interest expense . . . . . . . . . . 3,100
Income before taxes . . . . . . . 63,850
Income taxes . . . . . . . . . . . . . 15,800
Net income . . . . . . . . . . . . . . $ 48,050
excel
mhhe.com/larson
McCORD CORPORATION
Balance Sheet
December 31, 2005
Assets Liabilities and Equity
Cash . . . . . . . . . . . . . . . . . . . . . . $ 9,000 Accounts payable . . . . . ...

Solution Summary

This solution is comprised of a detailed explanation to compute the following: (1) current ratio, (2) acid-test ratio, (3) days' sales uncollected, (4) inventory turnover, (5) days' sales in inventory, (6) ratio of pledged assets to secured liabilities, (7) times interest earned, (8) profit margin ratio, (9) total asset turnover, (10) return on total assets, and (11) return
on common stockholders' equity. Attached as Word.

$2.19