Question

Exercise 13-17 a Sprague Company has been operating for several years, and on December 31, 2020, presented the following balance sheet. Cash Receivables Inventory Plant assets (net) SPRAGUE COMPANY BALANCE SHEET DECEMBER 31, 2020 $40,000 Accounts payable 75,000 Mortgage payable 95,000 Common stock ($1 par) 220,000 Retained earnings $430,000 $80,000 140,000 150,000 60,000 $430,000 The net income for 2020 was $25,000. Assume that total assets are the same in 2019 and 2020. (a) Compute each of the following ratios. (Round answers to 2 decimal places, e.g. 1.59 or 45.87%.) (a) Current ratio (b) Acid-test ratio (c) Debt to assets ratio (d) Return on assets

Answer 1

	Sprague Company
Req a	Current Ratio	Current Assets / Current Liabilities
		=210,000/80,000
	Current Ratio	2.63
	Workings
	Cash	40,000
	Receivables	75,000
	Inventory	95,000
	Total Current Assets	210,000
Req b	Acid-Test Ratio	(Current Assets - Inventory) / Current Liabilities
		=(210,000-95,000)/80,000
		=115,000/80,000
	Acid-Test Ratio	1.44
Req c	Debt to Assets Ratio	Total Debt/ Total Assets
		=220,000/430,000
	Debt to Assets Ratio	51.16%
	Workings
	Accounts payable	80,000
	Mortgage payable	140,000
	Total Debt	220,000
Req d	Return on assets	Net Income/ Average Assets
		=25,000/430,000
	Return on assets	5.81%