Question

The following financial statements apply to Karl Company:

Calculate the following ratios for 2018 and 2019. Since 2017 numbers are not presented, do not use averages when calculating the ratios for 2018. Instead, use the number presented on the 2018 balance sheet.

2019 2018 $420,000 16,000 436,000 $350,000 10,000 360,000 252,000 42,000 22,000 6,000 42,000 364,000 $ 72,000 206,000 38,000 20,000 6,000 36,000 306,000 $ 54,000 Revenues Net sales Other revenues Total revenues Expenses Cost of goods sold Selling expenses General and administrative expenses Interest expense Income tax expense Total expenses Net income Assets Curre asse Cash Marketable securities Accounts receivable Inventories Prepaid expenses Total current assets Plant and equipment (net) Intangibles Total assets Liabilities and Stockholders' Equity Liabilities Current liabilities Accounts payable Other Total current liabilities Bonds payable Total liabilities Stockholders' equity Common stock (100,000 shares) Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $ 8,000 2,000 70,000 200,000 6,000 286,000 210,000 40,000 $536,000 $ 16,000 2,000 64,000 192,000 4,000 278,000 210,000 $488,000 $ 80,000 34,000 114,000 132,000 246,000 $108,000 30,000 138,000 134,000 272,000 230,000 60,000 290,000 $536,000 230,000 (14,000) 216,000 $488,000

Answer 1

Based on the information available in the question, we can calculate the ratios that are marked as incorrect per the screenshot above:-

Requirement J:-

Acid test ratio = (Cash + Cash Equivalents + Accounts Receivables)/Current Liabilities

Particulars	2019	2018
Cash	8,000	16,000
Marketable securities	2,000	2,000
Accounts Receivables	70,000	64,000
	80,000	82,000
Current Liabilities	114,000	138,000
Acid Test Ratio	0.70 times	0.59 times

Requirement K:-

Accounts Receivable turnover = Credit Sales/Average accounts receivable

Particulars		2019	2018
Opening Accounts Receivable		64,000	-
Closing Accounts Receivable		70,000	-
Average Accounts Receivable		67,000	64,000
Sales		420,000	350,000
Accounts receivable turnover		6.27 times	5.47 times

Requirement L:-

Inventory Turnover = Cost of goods sold / Average stock

Inventory Turnover = Cost of Goods sold/Average stock
Particulars	2019	2018
Cost of Goods sold	252,000	206,000
Opening Inventory	192,000
Closing Inventory	200,000
Average Inventory	196,000	192,000
Inventory Turnover	1.29 times	1.07 times

Requirement M:-

Debt to equity ratio

Debt to equity ratio = Total Liabilities/Shareholders equity

Debt to equity ratio(2019) = $246,000/$290,000 = 0.84 times

Debt to equity ratio (208) = $272,000/ = 1.26 times

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