HORT PROBLEM Zippy Incorporated December 31, 2007 and 2008 Balance Sheet and fin
ID: 2595459 • Letter: H
Question
HORT PROBLEM Zippy Incorporated December 31, 2007 and 2008 Balance Sheet and financial data are as follows: 2015 31,000 54,400 (11, 000) 17,600 2016 10,000 102,000 (22,000) 49,000 4,000 Cash Accounts Receivable Allowance for doubtful accounts Inventory Prepaid Insurance Other current assets TOTAL CURRENT ASSETS $ 110,000 160,000 Land Property, Plant and Equipment Accumulated Depreciation TOTAL ASSETS 80,000 154,000 74,000 320,000 260,000 19,000 6,000 2,000 2,000 Accounts Payable Salaries Payable Advance from Customer Other current liabilities 7,000 TOTAL CURRENT LIABILITIES 30,000 35, 000 Loan Payable 78,000Explanation / Answer
Answer A.
2015:
Current Ratio = Current Assets / Current Liabilities
Current Ratio = $110,000 / $30,000
Current Ratio = 3.67 : 1
2016:
Current Ratio = Current Assets / Current Liabilities
Current Ratio = $160,000 / $35,000
Current Ratio = 4.57 : 1
Zipply’s current ratio increased from 2015 to 2016. Zipply’s is able to satisfy its current obligations.
Answer B.
2015:
Debt Ratio = Total Liabilities / Total Assets
Debt Ratio = (Current Liabilities + Loan Payable) / Total Assets
Debt Ratio = ($30,000 + $50,000) / $260,000
Debt Ratio = 30.77%
2016:
Debt Ratio = Total Liabilities / Total Assets
Debt Ratio = (Current Liabilities + Loan Payable) / Total Assets
Debt Ratio = ($35,000 + $78,000) / $320,000
Debt Ratio = 35.31%
Answer C.
Average Total Assets = (Total Assets 2015 + Total Assets 2016) / 2
Average Total Assets = ($260,000 + $320,000) / 2
Average Total Assets = $290,000
Return on Assets = Net Income / Average Total Assets
Return on Assets = $20,000 / $290,000
Return on Assets = 6.90%
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