Question

HALLBROOK INDUSTRIES, INC. Balance Sheet December 31, 2021 ($ in thousands) Assets Cash Short-term investments Accounts receivable Inventory Property, plant, and equipment (net) Total assets Liabilities and Shareholders' Equity Current liabilities Long-term liabilities Paid-in capital Retained earnings Total liabilities and shareholders' equity 360 310 360 370 2,600 $ 4,000 560 510 1,550 1,380 $ 4,000 The company's 2021 income statement reported the following amounts ($ in thousands) Net sales Interest expense Income tax expense Net income $6,200 50 150 320

Answer 1

Solution :

1. Computation of current ratio :

Particulars	Amount in $ (In thousands)
Cash	$ 360
Short term investments	$ 310
Inventory	$ 370
Accounts receivable	$ 360
Current assets (A)	$ 1,400 (A)
Current Liabilities (B)	$ 560 (B)

Current ratio = Current Assets / Current liabilities

Current ratio = $ 1,400 ($ in Thousands) / $ 560 ($ in thousands)

Current ratio = 2.50

2. Computation of Acid asset ratio :

Particulars	Amount in $ (In thousands)
Cash	$ 360
Short term investments	$ 310
Accounts receivable	$ 360
Quick Assets (A)	$ 1,030
Current Liabilities (B)	$ 560

Acid test ratio = Quick assets (A) / Current liabilities (B)

Acid test ratio = $ 1,030 ($ in thousands) / $ 560 ($ in thousands)

Acid test ratio = 1.839

3. Computation of Debt to equity ratio

Total Debt (A) = Current liabilities + Long term liabilities

Total Debt (A) = $ 560 ($ in thousands) + $ 510 ($ in thousands)

Total Debt (A) = $ 1,070 ($ in thousands)

Total equity (B) = Paid in capital + Retained earnings

Total Equity (B) = $ 1,550($ in thousands) +$ 1,380($ in thousands)

Total Equity (B) = $ 2,930($ in thousands)

Debt to Equity ratio = Total Debt (A) / Total Equity (B)

Debt to Equity ratio = $ 1,070($ in thousands) / $ 2,930($ in thousands)

Debt to Equity ratio = 0.36

4. Computation of Times interest earned ratio

Times interest earned ratio = EBIT (Earning before interest and taxes ) / Interest expense

EBIT( Earning before interest and taxes )= Net income + Interest expense + Income tax expense

EBIT = $ 320($ in thousands) + $ 50($ in thousands) + $ 150($ in thousands)

EBIT (A) = $ 520($ in thousands)

Interest expense (B) = $ 50($ in thousands)

Times Interest earned ratio = EBIT($ in thousands) / Interest expense($ in thousands)

Times interest earned ratio = $ 520($ in thousands) / $ 50($ in thousands)

Times interest earned ratio = 10.4

Conclusion

1. Current ratio	2.50
2. Acid test ratio	1.839
3. Debt to Equity ratio	0.36
4. Times interest earned ratio	10.4

Thankyou !!!!!!