Whispering Company has been operating for several years, and on December 31, 201

Question

Whispering Company has been operating for several years, and on December 31, 2017, presented the following balance sheet.

WHISPERING COMPANY
BALANCE SHEET
DECEMBER 31, 2017

The net income for 2017 was $24,200. Assume that total assets are the same in 2016 and 2017.

Compute each of the following ratios. (Round answers to 2 decimal places, e.g. 1.59 or 45.87%.)

WHISPERING COMPANY
BALANCE SHEET
DECEMBER 31, 2017

Cash $43,500 Accounts payable $82,800 Receivables 70,300 Mortgage payable 136,200 Inventory 103,400 Common stock ($1 par) 145,300 Plant assets (net) 227,900 Retained earnings 80,800 $445,100 $445,100

Explanation / Answer

Solution a:

Current ratio = Current assets / Current liablities

Current assets = Cash + Receivables + Inventory = $43,500 + $70,300 + $103,400 = $217,200

Current liablities = Accounts payable = $82,800

Current ratio = $217,200 / $82,800 = 2.62

Solution b:

Acid test ratio = Quick assets / Current liabilities

Quick assets = Current assets - Inventory = $217,200 - $103,400 = $113,800

Acid test ratio = $113,800 / $82,800 = 1.37

Solution c:

Debt to assets ratio = Total liabilities / Total assets

Total liabilities = $82,800 + $136,200 = $219,000

Debt to asset ratio = $219,000 / $445,100 = 49.20%

Solution d:

Return on assets = Net Income / Average total assets

= $24,200 / $445,100 = 5.44%

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