Macmillan Corporation has provided the following financial data: Balance Sheet D
ID: 2493708 • Letter: M
Question
Macmillan Corporation has provided the following financial data:
Balance Sheet
December 31, Year 2 and Year 1
Assets
Year 2
Year 1
Current assets:
Cash
$156,000
$120,000
Accounts receivable
268,000
280,000
Inventory
146,000
130,000
Prepaid expenses
20,000
20,000
Total current assets
590,000
550,000
Plant and equipment, net
732,000
760,000
Total assets
$1,322,000
$1,310,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable
$175,000
$180,000
Accrued liabilities
46,000
50,000
Notes payable, short term
80,000
80,000
Total current liabilities
301,000
310,000
Bonds payable
190,000
190,000
Total liabilities
491,000
500,000
Stockholders' equity:
Common stock, $5 par value
450,000
450,000
Additional paid-in capital-common stock
70,000
70,000
Retained earnings
311,000
290,000
Total stockholders' equity
831,000
810,000
Total liabilities & stockholders' equity
$1,322,000
$1,310,000
Income Statement—Year 2
For the Year Ended December 31, Year 2
Sales (all on account)
$1,390,000
Cost of goods sold
830,000
Gross margin
560,000
Operating expenses
500,615
Net operating income
59,385
Interest expense
16,000
Net income before taxes
43,385
Income taxes (35%)
15,185
Net income
$28,200
Dividends on common stock during Year 2 totaled $7,200. The market price of common stock at the end of Year 2 was $3.69 per share.
The company's current ratio at the end of Year 2 is closest to:
0.83
1.96
0.45
0.37
Balance Sheet
December 31, Year 2 and Year 1
Assets
Year 2
Year 1
Current assets:
Cash
$156,000
$120,000
Accounts receivable
268,000
280,000
Inventory
146,000
130,000
Prepaid expenses
20,000
20,000
Total current assets
590,000
550,000
Plant and equipment, net
732,000
760,000
Total assets
$1,322,000
$1,310,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable
$175,000
$180,000
Accrued liabilities
46,000
50,000
Notes payable, short term
80,000
80,000
Total current liabilities
301,000
310,000
Bonds payable
190,000
190,000
Total liabilities
491,000
500,000
Stockholders' equity:
Common stock, $5 par value
450,000
450,000
Additional paid-in capital-common stock
70,000
70,000
Retained earnings
311,000
290,000
Total stockholders' equity
831,000
810,000
Total liabilities & stockholders' equity
$1,322,000
$1,310,000
Explanation / Answer
Current ratio = Current Assets / Current Liabilities
= $ 590000 / $ 301000
= 1.96
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