Required B: (4 marks) In your own words, please explain each of the above ratios

Question

Required B: (4 marks) In your own words, please explain each of the above ratios? Current Ratio (I mark) Quick Ratio (1 mark) Debt to Equity Ratio (1 mark) Gross Profit Percentage (1 mark) fers a 12-month warranty on all its phones. OE estimates that one phone of each 200 cost OE S100. (10 marks) 0 sold will require warranty service and that the average warranty claim wil a) During 2018, OE sold 3,000,000 phones and no warranty work was performed. P ease prepare the journal entry for the year end December 31,2018 to recognize the warranty expense and warranty liability.

Explanation / Answer

Answer = 1) Current Ratio : This ratio will be shows the current assets available against current liability and this ratio will be calculates as Current Assets / Current Liabilities Quick Ratio: The Quick ratio will be show the how fast the company will meet there short term financial liabilities And this ratio will calculated As = (cash + securities + account receievable) / Current liabilities) Debt To Equity Ratio : this ratio will be calculated for the checking of the ratio of debt portion and equity portion of any comoany Ratio will be calculated by Dividing the Debt / Equity Gross profit percentage : This ratio will be caluclated by Dividing the COGS from the total Revenue and dividing that number by total revenue . This raito will show the gross profit pecentage from the industry. Answer = 2) Warranty Expenses = (3,000,000 / 2000 ) * $ 100 =1500 * $ 100 = $                 1,50,000 Journal Entries Date Account Title and explanation Debit Credit Dec, 31 2o018 Warranty Expenses $                 1,50,000       To Estimated Warranty Liabilities $                          1,50,000 (To Record the warranty Expenses for the year 2018)

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