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17 November, 09:52

Financial statement data for the years ended December 31 for Parker Corporation are as follows: Current Year Prior Year Sales $2,595,600 $2,409,498 Fixed assets (net) : Beginning of year $901,070 $820,000 End of year 829,330 901,070 a. Determine the fixed asset turnover ratio for the current and prior years. Round your answers to one decimal place. Current Year: Prior Year: b. Does the change in fixed asset turnover ratio from the prior year to the current year indicate a favorable or unfavorable trend

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Answers (2)
  1. 17 November, 09:55
    0
    a. Current year 1.5 Prior year 1.4

    b. Yes it indicates a favorable trend as it shows that sales of $1.50 was generated for every $1 invested in current year as against $1.40 for every $1 invested in prior year.

    Explanation:

    Fixed Asset turnover is the ratio of revenue to average Fixed assets of a company.

    It is a financial indicator that shows how much revenue a company generates in an accounting period for each $ 1 invested in assets (fixed asset in this case).

    Average assets in the

    current year

    = $901,070 + $829,330

    = $1,730,400

    Prior year

    = $820,000 + $901,070

    = $1,721,070

    As such fixed assets turnover for

    current year

    = $2,595,600/$1,730,400

    = 1.5

    prior year

    = $2,409,498/$1,721,070

    = 1.4
  2. 17 November, 10:11
    0
    we need to calculate the Average Fixed assets for both the periods.

    Average Fixed Assets = (Fixed Assets at the beginning + Fixed assets at the ending period) / 2

    Current Year = ($901070+829330) / 2

    = 1730400/2

    =$865200

    Prior Year = $820000+901070

    = 1721070/2

    = $860535

    Fixed Assets Turnover = Sales/Average Fixed Assets

    Current year = $2595600/865200

    = 3

    Prior Year = $2409498/860535

    = 2.8

    b) There is an increase in the Fixed asset turnover which indicates an increase in efficiency of using fixed assets to generate sales.
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