Question

The following is a December 31, 2018, post-closing trial balance for Culver City Lighting, Inc. Account...

The following is a December 31, 2018, post-closing trial balance for Culver City Lighting, Inc.

Account Title Debits Credits
Cash $ 55,000
Accounts receivable 39,000
Inventories 45,000
Prepaid insurance 15,000
Equipment 100,000
Accumulated depreciation—equipment $ 34,000
Patent, net 40,000
Accounts payable 12,000
Interest payable 2,000
Note payable (due in 10, equal annual installments) 100,000
Common stock 70,000
Retained earnings 76,000
Totals $ 294,000 $ 294,000

a. Calculate the current ratio.
b. Calculate the acid-test ratio.
c. Calculate the debt to equity ratio.

Homework Answers

Answer #1

Current Assets = Cash + Accounts receivables + Inventory + Prepaid insurance

= $55,000 + $39,000 + $45,000 + $15,000

= $154,000

Current liabilities = Accounts payable + Interest payable + Notes payable current portion

= $12,000 + $2,000 + $10,000

= $24,000

Total debt = Accounts payable + Interest payable + Notes payable

= $12,000 + $2,000 + $100,000

= $114,000

Total Equity = Common stock + Retained earnings

= $70,000 + $76,000

= $146,000

Current ratio = Current Assets / Current liabilities

= $154,000 / $24,000

= 6.42

Quick ratio = (Cash + Accounts receivable) / Current liabilities

= ($55,000 + $39,000) / $24,000

= 3.92

Debt Equity ratio = Total debt / Total Equity

= $114,000 / $146,000

= 0.78

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