Question

The following information is taken from records of ABC Company:

Items	Amount
Account receivables	30000
Inventory	80000
Cash	10000
Prepaid expense	6000
Equipment’s	60000
Land	100000
Building	40000
Wages payable	5000
Account payables	30000
Notes payable	25000
Long term liabilities	70000
Owners’ Equity	196000
Sales revenue	150000
Cost of goods sold	125000
Net income	25000

According to above information, answer the following questions:

1. The company’s gross profit margin is:

1. 60%
2. 55%
3. None of the above

2. The company’s net profit margin is:

1. 20%
2. 17%
3. 15%

3. The company’s return on assets is :

1. 10%
2. 12%
3. 8%

4. The company’s return on equity is :

1. 13%
2. 15%
3. 11%

5. The company’s net working capital is:

1. 60000
2. 196000
3. 66000

6. The company’s current ratio is:

1. 2.1 times
2. 1.5 times
3. 2.5 times

7. The company’s Quick ratio is:

1. 1 times
2. .9 times
3. .7 times

8. The company’s debt to equity is:

1. 25%
2. 36%
3. 50%

9. The company’s liability to assets is:

1. 40%
2. 50%
3. 60%

10. The company’s Equity to assets is:

1. 50%
2. 60%
3. 70%

Answer 1

Answer to Part 1.

Gross Profit = Sales Revenue – Cost of Goods Sold
Gross Profit = $150,000 - $125,000
Gross Profit = $25,000

Gross Profit Margin = Gross Profit / Sales Revenue * 100
Gross Profit Margin = $25,000 / $150,000 * 100
Gross Profit Margin = 17%

Correct Option: None of the above.

Answer to Part 2.

Net Profit Margin = Net Income / Sales Revenue* 100
Net Profit Margin = $25,000 / $150,000 * 100
Net Profit Margin = 17%

Correct Option: 17%

Answer to Part 3.

Return on Assets = Net Income / Total Assets * 100

Total Assets = Accounts Receivables + Inventory + Cash + Prepaid Expense + Equipment + Land + Building
Total Assets = $30,000 + $80,000 + $10,000 + $6,000 + $60,000 + $100,000 + $40,000
Total Assets = $326,000

Return on Assets = $25,000 / $326,000 * 100
Return on Assets = 8%

Correct Option: 8%

Answer to Part 4.

Return on Equity = Net Income / Total Equity * 100
Return on Equity = $25,000 / $196,000 * 100
Return on Equity = 13%

Correct Option: 13%

Answer to Part 5.

Net Working Capital = Current Assets – Current Liabilities

Current Assets = Accounts Receivables + Inventory + Cash + Prepaid Expense
Current Assets = $30,000 + $80,000 + $10,000 + $6,000
Current Assets = $126,000

Current Liabilities = Wages Payable + Account Payable + Notes Payable
Current Liabilities = $5,000 + $30,000 + $25,000
Current Liabilities = $60,000

Net Working Capital = $126,000 - $60,000
Net Working Capital = $66,000

Correct Option: $66,000

Answer to Part 6.

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $126,000 / $60,000
Current Ratio = 2.1 times

Correct Option: 2.1 times

Answer to Part 7.

Quick Ratio = (Current Assets – Inventory – Prepaid Expense) / Current Liabilities
Quick Ratio = ($126,000 - $80,000 - $6,000) / $60,000
Quick Ratio = 0.7 times

Correct Option: 0.7 times

Answer to Part 8.

Debt to Equity = Total Debt / Total Equity

Total Debt = Current Liabilities + Long term Liabilities
Total Debt = $60,000 + $70,000
Total Debt = $130,000

Debt to Equity = $130,000 / $196,000
Debt to Equity = 66%

Correct Option: None of the above

Answer to Part 9.

Liability to Assets = Total Liability / Total Assets
Liability to Assets = $130,000 / $326,000 * 100
Liability to Assets = 40%

Correct Option: 40%

Answer to Part 10.

Equity to Assets = Total Equity / Total Assets * 100
Equity to Assets = $196,000 / $326,000 * 100
Equity to Assets = 60%

Correct Option: 60%