Question

The financial statements for Castile Products, Inc., are given below: Castile Products, Inc. Balance Sheet December 31 Assets Current assets: Cash Accounts receivable, net Merchandise inventory Prepaid expenses $ 24,000 190,000 310,000 11,000 Total current assets Property and equipment, net 535,000 900,000 Total assets $1,435,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities Bonds payable, 11% $ 230,000 390,000 620,000 Total liabilities Stockholders' equity: Common stock, $5 par value Retained earnings $ 120,000 695,000 Total stockholders' equity 815,000 Total liabilities and equity $1,435,000 Castile Products, Inc. Income Statement For the Year Ended December 31 Sales $2,730,000 Cost of goods sold 1,320,000 Gross margin Selling and administrative expenses 1,410,000 640,000 Net operating income Interest expense 770,000 42,900 Net income before taxes Income taxes (30%) 727,100 218,130 Net income $ 508,970

Answer 1

SOLUTION

1. Working capital = Current assets - Current liabilities

= $535,000 - $230,000 = $305,000

2. Current ratio = Current assets / Current liabilities

= $535,000 / $230,000 = 2.33

3. Quick ratio = (Current assets - Inventory - Prepaid expenses) / Current liabilities

= (535,000 - 310,000 - 11,000) / $230,000

= 214,000 / 230,000 = 0.93

4. Debt to equity ratio = Total liability / Total equity

= $620,000 / 815,000 = 0.76

* As per HOMEWORKLIB RULES, I have answered first four sub parts.