Pharoah Company provides you with the following balance sheet information as of

Question

Pharoah Company provides you with the following balance sheet information as of December 31, 2017. Current assets $11,700 Current liabilities Long-term assets 25,100 Long-term liabilities $12,800 12,900 11,100 $36,800 Total assets $36,800 Stockholders' equity Total liabilities and stockholders' equity In addition, Pharoah reported net income for 2017 of $15,000, income tax expense of $3,400, and interest expense of $1,100. Compute the current ratio and working capital for Pharoah for 2017. (Round current ratio to 2 decimal places, e.g. 2.75. Enter negative amounts using either a negative sign preceding the number e.g.-45 or parentheses e.g. (45).) Current ratio Working capitals Assume that at the end of 2017, Pharoah used $2,900 cash to pay off $2,900 of accounts payable. How would the current ratio and working capital have changed? (Round current ratio to 2 decimal places, e.g. 2.75. Enter negative amounts using either a negative sign preceding the number e.g.-45 or parentheses e.g.(45)) Current ratio Working capital ,

Explanation / Answer

Compute current ratio and working capital :

Current ratio = Current assets/current liabilities

= 11700/12800

Current ratio = 0.91;1

Working capital = Current assets-current liabilities

= 11700-12800

Working capital = -1100

Assume phroach used 2900 cash to pay off 2900 account payable then current ratio and working capital :

Current ratio=8800/9900 = 0.89;1

Working capital = 8800-9900 = -1100

Compute debt to assets ratio and times interest earned :

Debt to assets ratio = Total debts/total assets

= 25700/36800

Debt to assets ratio = 0.70:1

Times interest earned ratio = EBIT/interest

= 19500/1100

Times interest earned ratio = 17.73 times

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