Question

The following is a December 31, 2018, post-closing trial balance for Culver City Lighting, Inc. Account Title Debits Credits Cash $ 68,000 Accounts receivable 52,000 Inventories 58,000 Prepaid insurance 28,000 Equipment 120,000 Accumulated depreciation—equipment $ 47,000 Patent, net 53,000 Accounts payable 18,500 Interest payable 8,500 Note payable (due in 10, equal annual installments) 140,000 Common stock 83,000 Retained earnings 82,000 Totals $ 379,000 $ 379,000 a. Calculate the current ratio. b. Calculate the acid-test ratio. c. Calculate the debt to equity ratio. The following is a December 31, 2018, post-closing trial balance for Culver City Lighting, Inc. Account Title Debits Credits Cash $ 68,000 Accounts receivable 52,000 Inventories 58,000 Prepaid insurance 28,000 Equipment 120,000 Accumulated depreciation—equipment $ 47,000 Patent, net 53,000 Accounts payable 18,500 Interest payable 8,500 Note payable (due in 10, equal annual installments) 140,000 Common stock 83,000 Retained earnings 82,000 Totals $ 379,000 $ 379,000 a. Calculate the current ratio. b. Calculate the acid-test ratio. c. Calculate the debt to equity ratio.

Answer 1

Ans- Total current assets:-

Cash	$68,000
Accounts Receivable	$52,000
Inventories	$58,000
Prepaid Insurance	$28,000
Total Current Assets	$206,000

Total Current Liabilities:-

Accounts Payable	$18,500
Interest Payable	$8,500
Current Portion of notes payable ($140,000/10)	$14,000
Total Current Liabilities	$41,000

1- Current ratio= Current assets/ Current liabilities

=$206,000/ $41,000

=5.02

2- Acid test ratio= (Current assets- inventory- prepaid expenses)/ Current liabilities

=($206,000-$58,000-$28,000) / $41,000

=$120,000/ $41,000

=2.93

Total debt= (Interest payable + Accounts payable + Notes payable )

=($18,500+$8,500+$140,000)= $167,000

Total equity= (Common stock+ Retained earnings)

=($83,000+$82,000)= $165,000

Debt to equity ratio= Debt/ Equity

=$167,000/ $165,000

=1.01