Compute the specified ratios using Hilda Company’s balance sheet at December 3

Question

Compute the specified ratios using Hilda Company’s balance sheet at December 31, 2011.


Assets
Cash $14,000
Marketable securities 9,000
Accounts receivable 14,000
Inventory 10,000
Property and equipment 175,000
Accumulated depreciation (13,000)

Total assets $209,000

Equities
Accounts payable $10000
Current notes payable 4,000
Mortgage payable 5,000
Bonds payable 21,500
Common stock 63500
Retained earnings 209,000

Total liabilities and stockholders’ equity $209,000

The average number of common stock shares outstanding during 2011 was 850 shares. Net income for the year was $13,000.

Required
Compute each of the following:

(a) Current ratio. (Round your answer to 2 decimal places.)

Current ratio ? : 1

(b)

Earnings per share. (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Earnings per share $? per share

(c) Quick (acid-test) ratio. (Round your answer to 2 decimal places.)

Quick (acid-test) ratio ?: 1

(d)

Return on investment. (Round your answer to 2 decimal places. Omit the "%" sign in your response.)

Return on investment ?%

(e) Return on equity. (Round your answer to 2 decimal places. Omit the "%" sign in your response.)

Return on equity ?%

(f) Debt to equity ratio. (Round your answer to 2 decimal places. Omit the "%" sign in your response.)

Debt to equity ratio ?%

Explanation / Answer

Hi,

Please find the answers as follows:

Current Ratio = Current Assets/Current Liabilities = (14000 + 9000 + 14000 + 10000)/(10000 + 4000) = 3.36:1

Earnings Per Share = Net Income/Commons Stock Outsanding = 13000/850 = 15.29

Quick Ratio = Quick Assets/Current Liabilties = (14000 + 9000 + 14000)/(10000 + 4000) = 2.64:1 (Inventory is not considered in the calculation of quick assets)

Return on Investment = Net Income/Total Assets = 13000/209000*100 = 6.22%

Return on Equity = Net Income/Stockholder's Equity = 13000/(63500 + 105000)*100 = 7.72%

Debt to Equity Ratio =Total Liabilties/Stockholder's Equity = 40500/(63500 + 105000) = .24

If only long term debt is taken, Debt to Equity Ratio would be = Debt/Equity = 26500/(63500 + 105000) = .15

Notes:

Current Assets = Cash + Marketable Securities + Accounts Receivables + Inventory

Quick Assets = Cash + Marketable Securities + Accounts Receivables

Current Liabilities = Accounts Payables Current Notes Payables

Stockholder's Equity = Common Stock + Retained Earnings

Thanks.

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