Question

Balance sheet Assets Cash Marketable securities Accounts receivable Inventory Property and equipment Accumulated depreciation
Required Compute each of the following: (Round your per share a. Current ratio b. Earnings per share o. Quick (acid-test) rat


The average number of common stock shares outstanding during 2018 was 850 shares. Net Income for the year was $14,800 Require
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Answer #1

a. Current ratio = Current assets / Current liabilities

Current assets = Cash + marketable securities + accounts receivable + inventory

Current assets = $15150 + $8260 + $13400 + $11500 = $48310

Current liabilities = Accounts payable + current notes payable + mortgage payable

Current liabilities = $8720 + $3400 + $4200 = $16320

Now, putting these values in the current ratio formula, we get,

Current assets = $48310, Current liabilities = $16320

Current ratio = $48310 / $16320 = 2.96

b. Earnings per share (EPS) = Net income / Average number of common shares outstanding

Putting the values in the above formula, we get,

Earnings per share (EPS) = $14800 / 850 = 17.41 per share

c. Quick (acid test) ratio = Current assets – Inventories / Current liabilities

Current assets = $48310 (as calculated in point (a) above), Current liabilities = $16320 (as calculated in point (a) above), Inventories = $11500

Putting the values in the above formula, we get,

Quick ratio = ($48310 - $11500) / $16320

Quick ratio = $36810 / $16320 = 2.26

d. Return on investment ratio = Net income / Assets * 100

Net income = $14800, Assets = $207810

Putting the values in the above formula, we get,

Return on investment = $14800 / $207810 * 100

Return on investment = 7.12%

e. Return on equity (ROE) = Net income / Stockholder's equity * 100

Net income = $14800

Stockholder's equity = Common stock + Retained earnings

Stockholder's equity = $114300 + $56010 = $170310

Now, putting these values in the above ROE formula, we get,

Return on equity (ROE) = $14800 / $56010 * 100 = 26.42%

f. Debt to equity ratio = Total liabilities / Shareholder's equity * 100

Total liabilities = Accounts payable + current notes payable + Mortgage payable + Bonds payable

Total liabilities = $8720 + $3400 + $4200 + $21180 = $37500

Shareholder's equity = $56010 (as calculated in point (g) above)

Debt to equity ratio = $37500 / $56010 * 100 = 66.95%

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