Determination of Liquid, Activity and Solvency Ratios

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Sub: Finance                                                             Topic: Managerial Accounts

Determination of Liquid, Activity and Solvency Ratios

Question:
These summarized data were obtained from the accounting records of Hamberg Company at the end
of its fiscal year, September 30:

                                                                               2008                       2007

Cash                                                                           $ 30,225                   $ 27,240

Accounts receivable                                                             149,375                    128,160

Inventory                                                                       140,250                    90,690

All other assets                                                                435,900                    333,580

Accounts payable                                                                131,625                    109,500

Bank note payable, due in 90 days                                               60,000                     36,000

Note payable, due in 8 years                                                    34,375                     27,500

Sales                                                                           980,800                    800,680

Cost of goods sold                                                              827,500                    651,780

Operating expenses                                                              35,650                     26,330

Compute the following for 2008 given the data provided:

A: Activity ratios.

B. Liquidity and solvency ratios.

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                                                                   D
Sub: Finance                                                            Topic: Managerial Accounts


Solution:

                                                                                                 2008                2007

Cash                                                                                                $ 30,225          $ 27,240

Accounts receivable                                                                               $ 149,375         $ 128,160

Inventory                                                                                         $ 140,250           $ 90,690

All other assets                                                                                  $ 435,900         $ 333,580

Accounts payable                                                                                  $ 131,625         $ 109,500

Bank note payable, due in 90days                                                                    $ 60,000          $ 36,000

Note payable, due in 8 years                                                                        $ 34,375          $ 27,500

Sales                                                                                             $ 980,800         $ 800,680

Cost of goods sold                                                                                $ 827,500         $ 651,780

Operating expenses                                                                                  $ 35,650          $ 26,330



ACTIVITY RATIOS:

Accounts receivable turnover = Sales/Average Accounts receivable                                         7.07

Assets turnover = Sales /Total assets                                                                    1.30

Inventory turnover = Cost of goods sold/Average inventory                                                7.17



LIQUIDITY RATIOS:


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                                                                  D
Sub: Finance                                                            Topic: Managerial Accounts

Current ratio = Current assets/Current liabilities                                                       1.67

Quick ratio = (Current assets-inventory)/Current liabilities                                             0.94



SOLVENCY RATIOS:

Debt:

Accounts payable                                            
				
DOCUMENT INFO
Description: "Compute the following for 2008 given the data provided: A: Activity ratios. B. Liquidity and solvency ratios. "
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