Question

Income statements and balance sheets data for Virtual Gaming Systems are provided below.

VIRTUAL GAMING SYSTEMS
Income Statements
For the year ended December 31
2019 2018
Net sales $3,500,000 $3,026,000
Cost of goods sold 2,478,000 1,948,000
Gross profit 1,022,000 1,078,000
Expenses:
Operating expenses 953,000 856,000
Depreciation expense 28,000 26,000
Loss on sale of land 0 7,800
Interest expense 17,000 14,000
Income tax expense 7,800 47,000
Total expenses 1,005,800 950,800
Net income $ 16,200 $ 127,200


VIRTUAL GAMING SYSTEMS
Balance Sheets
December 31
2019 2018 2017
Assets
Current assets:
Cash $ 200,000 $184,000 $142,000
Accounts receivable 74,000 79,000 58,000
Inventory 124,000 103,000 133,000
Prepaid rent 13,800 11,800 5,760
Long-term assets:
Investment in bonds 103,000 103,000 0
Land 298,000 208,000 238,000
Equipment 298,000 268,000 208,000
Less: Accumulated depreciation (94,000) (66,000) (40,000)
Total assets $1,016,800 $890,800 $744,760
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 203,400 $ 64,000 $108,160
Interest payable 8,400 5,600 2,800
Income tax payable 11,800 14,000 13,800
Long-term liabilities:
Notes payable 380,000 283,000 223,000
Stockholders' equity:
Common stock 298,000 298,000 298,000
Retained earnings 115,200 226,200 99,000
Total liabilities and stockholders’ equity $1,016,800 $890,800 $744,760
Questions:

2018 2019
Receivables turnover ratio times times
Inventory turnover ratio times times
Current ratio to 1 to 1
Debt to equity ratio % %
2018 2019
Gross profit ratio % %
Return on assets % %
Profit margin % %
Asset turnover times times

Answer 1

Answer:

Receivables turnover ratio = net credit sales during the year / average accounts receivable

• 2018 = $3,026,000 / [($58,000 + $79,000)/2] = 44.2
• 2019 = $3,500,000 / [($79,000 + $74,000)/2] = 45.8

Inventory turnover ratio = cost of goods sold / average inventory

• 2018 = $1,948,000 / [($133,000 + $103,000)/2] = 16.5
• 2019 = $2,478,000 / [($103,000 + $124,000)/2] = 21.8

Current ratio = current assets / current liabilities

• 2018 = ($184,000 + $79,000 + $103,000 + $11,800) / ($64,000 + $5,600 + $14,000) = 4.5
• 2019 = ($200,000 + $74,000 + $124,000 + $13,800) / ($203,400 + $8,400 + $11,800) = 1.8

Debt to equity ratio = total liabilities / total shareholder equity

• 2018 = $366,600 / $524,200 = 0.7 = 70%
• 2019 = $603,600 / $413,200 = 1.5 = 146%

Gross profit ratio = gross profit / net sales

• 2018 = $1,078,000 / $3,026,000 = 36%
• 2019 = $1,022,000 / $3,500,000 = 29%

Return on assets = net income / average total assets

• 2018 = $127,200 / [($890,800 + $744,760)/2] = 15.6%
• 2019 = $16,200 / [($1,016,800 + $890,800)/2] = 1.7%

Profit margin = net income / net sales

• 2018 = $127,200 / $3,026,000 = 4.2%
• 2019 = $16,200 / $3,500,000 = 0.5%

Asset turnover = net sales / average total assets

• 2018 = $3,026,000 / [($890,800 + $744,760)/2] = 3.7
• 2019 = $3,500,000 / [($1,016,800 + $890,800)/2] = 3.7

Answer 2

Answer:

Receivables turnover ratio = net credit sales during the year / average accounts receivable

• 2018 = $3,026,000 / [($58,000 + $79,000)/2] = 44.2

• 2019 = $3,500,000 / [($79,000 + $74,000)/2] = 45.8

Inventory turnover ratio = cost of goods sold / average inventory

• 2018 = $1,948,000 / [($133,000 + $103,000)/2] = 16.5

• 2019 = $2,478,000 / [($103,000 + $124,000)/2] = 21.8

Current ratio = current assets / current liabilities

• 2018 = ($184,000 + $79,000 + $103,000 + $11,800) / ($64,000 + $5,600 + $14,000) = 4.5

• 2019 = ($200,000 + $74,000 + $124,000 + $13,800) / ($203,400 + $8,400 + $11,800) = 1.8

Debt to equity ratio = total liabilities / total shareholder equity

• 2018 = $366,600 / $524,200 = 0.7 = 70%

• 2019 = $603,600 / $413,200 = 1.5 = 146%

Gross profit ratio = gross profit / net sales

• 2018 = $1,078,000 / $3,026,000 = 36%

• 2019 = $1,022,000 / $3,500,000 = 29%

Return on assets = net income / average total assets

• 2018 = $127,200 / [($890,800 + $744,760)/2] = 15.6%

• 2019 = $16,200 / [($1,016,800 + $890,800)/2] = 1.7%

Profit margin = net income / net sales

• 2018 = $127,200 / $3,026,000 = 4.2%

• 2019 = $16,200 / $3,500,000 = 0.5%

Asset turnover = net sales / average total assets

• 2018
• $3,026,000 / [($890,800 + $744,760)/2] = 3.7

• 2019

• $3,500,000 / [($1,016,800 + $890,800)/2] = 3.7

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