Question

Markus Company’s common stock sold for $2.00 per share at the end of this year. The company paid a common stock dividend of $0.42 per share this year. It also provided the following data excerpts from this year’s financial statements:     

	Ending Balance		Beginning Balance
Cash	$	30,500	$	46,000
Accounts receivable	$	52,000	$	45,000
Inventory	$	49,300	$	52,000
Current assets	$	131,800	$	143,000
Total assets	$	353,000	$	318,200
Current liabilities	$	52,500	$	37,500
Total liabilities	$	98,000	$	88,200
Common stock, $1 par value	$	111,000	$	111,000
Total stockholders’ equity	$	255,000	$	230,000
Total liabilities and stockholders’ equity	$	353,000	$	318,200

     

	This Year
Sales (all on account)	$	585,000
Cost of goods sold	$	339,300
Gross margin	$	245,700
Net operating income	$	75,500
Interest expense	$	4,500
Net income	$	49,700

14. What is the debt-to-equity ratio at the end of this year? (Round your answer to 2 decimal places.)      

15. What is the equity multiplier? (Round your answer to 2 decimal places.)     

16. What is the acid-test ratio at the end of this year? (Round your answer to 2 decimal places.)

Answer 1

Answer is as follows:

14. Debt to equity ratio = Total liabilities / Total Shareholder's equity

= $98000 / $255000  

= 0.38

15. Equity multiplier = Total assets / Total Shareholder's equity

= $353000 / $255000

= 1.38

16. Acid test ratio = Liquid assets / Liquid liabilities

= $131800 / $52500

= 2.51

Liquid assets = Current assets - Prepaid insurance - Inventory = $131800 - $49300 = $82500

Liquid liabilities = Current Liabilities - Bank Overdraft = $52500