solution

With reference to the 4C Company’s unadjusted trial balance, balance sheet, and income statement (Case 2) for the year ending December 31, 0007, calculate each of the following. (This is the first year of 4C Company’s operation. When averages are called for but only beginning numbers are available, use the ending numbers shown in Case 2 financial statements.)

a. Working capital

b. Current ratio

c. Quick ratio

d. Credit card receivables average collection period (Credit card sales revenue

is 60% of total sales revenue.)

e. Accounts receivable average collection period (Accounts receivable is 10%

of total sales revenue.)

f. Net return on assets

g. Net income to total sales revenue ratio

h. Return on stockholders’ equity

i. Food inventory turnover ratio

j. Beverage inventory turnover ratio

k. Cost of sales, food percentage

l. Cost of sales, beverage percentage

1. To conserve cash during the first year of operation, Mr. Driver limited his salary to $1,500 per month. Explain whether the funds being withdrawn as a salary are considered as a deductible operating expense to the 4C Company.

 2. Prepare a short discussion of each calculated ratio, which you believe may be unsatisfactory, and explain why.

3. It appears that 4C has a good liquid cash position, and Mr. Driver is considering using $20,000 of 4C cash to redeem some of his shares of common stock before the final financial statements of the current year are prepared. He asks for your opinion. Recalculate any of the preceding ratios that will be affected by the repurchase of the stock and discuss the effects if the stock repurchase is made.