Use the balance sheets of Sando shown below to calculate the following ratios fo

Question

Use the balance sheets of Sando shown below to calculate the following ratios for 2012 (round to the hundredths): a) current ratio b) acid-test ratio c) debt ratio d) equity ratio
Alberts Company

Balance Sheets

December 31, 2012 and 2011




2011 2012
Assets

Cash $43,000 $22,000
Accounts receivable 38,000 42,000
Merchandise Inventory 61,000 52,000
Prepaid Insurance 6,000 9,000
Long term investments 49,000 20,000
Plant assets (net) 218,000 218000
Total assets $415,000 $363,000

Liabilities and Equity
Current liabilities $62,000 $75,000
Long-term liabilities 45,000 36,000
Common stock 150,000 150,000
Retained Earnings 158,000 102,000
Total liabilities and equity $415,000 $363,000

Explanation / Answer

(a) Current ratio. Current ratio = Current assets /Current liabilities Current assets =Cash +account receivables+ Merchandised inventory +Prepaid insurance Current assets (2008) = 43000+38000+61000+6000 =$148000 Current Ratio =$148000/$62000 =2.387 =2.39 (b) Acid-test ratio Acid test ratio = (Current assets- Merchandised inventory) /Current liabilities . = ($148000-$61000)/$62000 =$87000/$62000= 1.403 =1.40 (c) Debt ratio. Debt ratio = Total debts /Total assets Total debts = Current liabilities +Long term liabilities = $62000+$45000 =$107000 Total assets =$415000 Debt ratio = $107000/$415000 =0.2578 = 25.78% =26% (approximately) (d) Equity ratio. Equity ratio = Equity /Total assets Equity =Common stock +Retained earnings =$150000 +$158000 =$308000 Equity ratio = 308000/415000 =0.7422 = 74.22% =74% (approximately)

Related Questions

Navigate

• Browse (All)
• Browse U
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.