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.

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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