Selected year-end financial statements of ABC Corporation follow. (All sales wer

Question

Selected year-end financial statements of ABC Corporation follow. (All sales were on credit; selected balance sheet amounts at December 31, 2014, were inventory, $53,900; total assets, $209,400; common stock, $90,000; and retained earnings, $40,165.)

Calculate the following:

Current Ratio

Acid-Test Ratio

Times Interest Earned

Return on Common Stockholder's Equity

Selected year-end financial statements of ABC Corporation follow. (All sales were on credit; selected balance sheet amounts at December 31, 2014, were inventory, $53,900; total assets, $209,400; common stock, $90,000; and retained earnings, $40,165.)

Explanation / Answer

Current Ratio = Current Assets/ Current Liabilities Cash 20000 Accounts Receivable 30800 Short term investment 8800 Notes Receivable(trade) 5500 Marchandise Inventory 34150 Current Assets 99250 Accounts Payable 17500 Accrued Wages Payable 4600 Income Tax Payable 3500 Current Liabilities 25600 Current Ratio 3.88 Acid-Test Ratio = Quick assets / Current Liabilities Cash 20000 Accounts Receivable 30800 Short term investment 8800 Notes Receivable(trade) 5500 Quick Assets 65100 Acid-Test Ratio 2.54 Times Interest Earned = EBIT/Interest expenses Earnings Before Interest and Tas (EBIT) = Gross Profit - Operating Expenses Or, EBIT = 150,950 - 98500 = 52450 Times Interest Earned = 52450/5000 = 10.49. Return on Common stock holders Equity = Net Income/Shareholders Equity =28,335/(90,000+68,500) =17.88%

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