Question

Use the following information to complete questions Income Tax Rate: 40%             Income Before Income Tax:...

Use the following information to complete questions

Income Tax Rate: 40%
            Income Before Income Tax: $500,000
            Cash: $50,000
            Inventory: $80,000
            Accounts Receivable, Net: $30,000
            Accounts Payable: $20,000
            Prepaid Rent: $50,000
            Note Payable: $30,000
            Interest Expense: $5,000
            Beginning Retained Earnings Balance: $40,000
            Dividends Paid: $1,000

Machinery: $100,000
      Common Stock: $80,000
      Accumulated Depreciation: $50,000
      Bonds Payable: $150,000
      Patent: $3,000

Note Receivable: $150,000

Land: $106,000

Building: $100,000

  1. What is the current ratio?


  2. What is the quick ratio?


  3. What is the Debt-to-Equity Ratio?


  4. Times interest earned?

Homework Answers

Answer #1

Current ratio = Current assets / Current liabilities

Current assets:

Cash $50000

Inventory $80000

Accounts receivable $30000

Notes receivable $150000

Prepaid rent $50000

Total current assets $360000.

Current liabilities:

Accounts payable $20000

Notes payable $30000

Total current liabilities $50000

Current ratio = $360000 / $50000

= 7.2 times.

Quick ratio = (Current assets - inventory - prepaid expenses) / Current liabilities

Current liabilities = ($360000 - $80000 - $50000) / $50000

= 4.6 times

Debt to equity ratio = Total liabilities / Shareholders equity

Accounts payable $20000

Notes payable $30000

Bonds payable $150000

Total liabilities $200000

Common stock $80000

Retained earnings $339000

Shareholders equity $419000

Debt to equity ratio = $200000 / $419000

= 0.48

Times interest earned ratio = EBIT / Interest expense

= $505000 / $5000

= 101 times.

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