Waystation Company reported the following asset values in 2002 and 2003:
|
2003 |
2002 |
|
|
Cash |
$40,000 |
$30,000 |
|
Accounts receivable |
500,000 |
400,000 |
|
Inventory |
700,000 |
500,000 |
|
Land |
300,000 |
200,000 |
|
Buildings |
800,000 |
600,000 |
|
Equipment |
400,000 |
300,000 |
In addition, Way station had sales of $4,000,000 in 2003. Cost of goods sold for the year was $2,500,000.
As of the end of 2002, the fair value of Way station s total assets was $2,500,000. Of the excess of fair value over book value, $50,000 resulted because the fair value of Way station s inventory was greater than its recorded book value. As of the end of 2003, the fair value of Way station s total assets was $3,500,000. As of December 31, 2003, the fair value of Way station s inventory was $100,000 greater than the inventory s recorded book value.
1. Compute Way station s fixed asset turnover ratio for 2003.
2. Using the fair value of fixed assets instead of the book value of fixed assets, recomputed Way station s fixed asset turnover ratio for 2003. State any assumptions that you make.
3. Interpretive Question: Way station s primary competitor is Handy Corner. Handy Corner s fixed asset turnover ratio for 2003, based on publicly available information, is 2.8 times. Is Way station more or less efficient at using its fixed assets than is Handy Corner? Explain your answer.