REQUIREMENTS: 1. Compute Eastland\'s current? ratio, debt? ratio, and earnings p
ID: 2520705 • Letter: R
Question
REQUIREMENTS:
1.
Compute Eastland's current? ratio, debt? ratio, and earnings per share. Round all ratios to two decimal places. Start by determining the formula for each ratio,beginning withthe current ratio,followed by the debt ratio, and then endings pershare.
2.
Compute the three ratios after evaluating the effect of each transaction that follows. Consider each transaction
separately.
a.
Borrowed $115,000 on a? long-term note payable.
b.
On January? 1, Issued 15,000
shares of common? stock, receiving cash of $367,000.
c.
Paid? short-term notes? payable, $30,000.
d.
Purchased merchandise of $44,000 on? account, debiting Inventory.
e.
Received cash on? account, $15,000.
Cash
$20,000
Accounts payable
$104,000
Short-term investments
36,000
Accrued liabilities
32,000
Accounts receivable, net
88,000
Long-term notes payable
165,000
Inventories
146,000
Other long-term liabilities
31,000
Prepaid expenses
7,000
Net income
99,000
Total assets
672,000
Short-term notes payable
40,000
# of common shares outstanding
49,000
1.
Compute Eastland's current? ratio, debt? ratio, and earnings per share. Round all ratios to two decimal places. Start by determining the formula for each ratio,beginning withthe current ratio,followed by the debt ratio, and then endings pershare.
2.
Compute the three ratios after evaluating the effect of each transaction that follows. Consider each transaction
separately.
a.
Borrowed $115,000 on a? long-term note payable.
b.
On January? 1, Issued 15,000
shares of common? stock, receiving cash of $367,000.
c.
Paid? short-term notes? payable, $30,000.
d.
Purchased merchandise of $44,000 on? account, debiting Inventory.
e.
Received cash on? account, $15,000.
Explanation / Answer
Ratio Prior to adjustments
1-
current ratio
current assets/current liabilities
277000/176000
1.57
current assets
36000+88000+146000+7000
277000
current liabilities
40000+104000+32000
176000
2-
debt ratio
total of liabilities/total assets
372000/672000
0.55
total of liabilities
current liabilities+long term notes payable+other long term liabilities
176000+165000+31000
372000
total of assets
672000
3-
Earning per share
net income/no of shares
2.02
net income
99000
no of shares
49000
Adjustments-effect on balances
2-
cash
long term notes payable
no of common stock
short term notes payable
accounts payable
inventory
accounts receivables
opening balance
20000
165000
49000
40000
104000
146000
88000
A-
115000
115000
B-
367000
15000
C-
-30000
-30000
D-
44000
44000
E
15000
-15000
year end balance
487000
280000
64000
10000
148000
190000
73000
Year end balance after the adjustments
Cash
$487,000
Accounts payable
$148,000
Short-term investments
36,000
Accrued liabilities
32,000
Accounts receivable, net
73,000
Long-term notes payable
280,000
Inventories
190,000
Other long-term liabilities
31,000
Prepaid expenses
7,000
Net income
99,000
Total assets
672,000
Short-term notes payable
10,000
# of common shares outstanding
64,000
Fixed assets = total of assets-total of current assets
672000-277000
395000
1-
current ratio
current assets/current liabilities
793000/190000
4.173684
current assets
7000+190000+73000+36000+487000
793000
current liabilities
10000+148000+32000
190000
2-
debt ratio
total of liabilities/total assets
501000/1188000
0.42
total of liabilities
current liabilities+long term notes payable+other long term liabilities
190000+280000+31000
501000
total of assets
fixed assets+current assets
395000+793000
1188000
3-
Earning per share
net income/no of shares
1.55
net income
99000
no of shares
64000
Ratio Prior to adjustments
1-
current ratio
current assets/current liabilities
277000/176000
1.57
current assets
36000+88000+146000+7000
277000
current liabilities
40000+104000+32000
176000
2-
debt ratio
total of liabilities/total assets
372000/672000
0.55
total of liabilities
current liabilities+long term notes payable+other long term liabilities
176000+165000+31000
372000
total of assets
672000
3-
Earning per share
net income/no of shares
2.02
net income
99000
no of shares
49000
Adjustments-effect on balances
2-
cash
long term notes payable
no of common stock
short term notes payable
accounts payable
inventory
accounts receivables
opening balance
20000
165000
49000
40000
104000
146000
88000
A-
115000
115000
B-
367000
15000
C-
-30000
-30000
D-
44000
44000
E
15000
-15000
year end balance
487000
280000
64000
10000
148000
190000
73000
Year end balance after the adjustments
Cash
$487,000
Accounts payable
$148,000
Short-term investments
36,000
Accrued liabilities
32,000
Accounts receivable, net
73,000
Long-term notes payable
280,000
Inventories
190,000
Other long-term liabilities
31,000
Prepaid expenses
7,000
Net income
99,000
Total assets
672,000
Short-term notes payable
10,000
# of common shares outstanding
64,000
Fixed assets = total of assets-total of current assets
672000-277000
395000
1-
current ratio
current assets/current liabilities
793000/190000
4.173684
current assets
7000+190000+73000+36000+487000
793000
current liabilities
10000+148000+32000
190000
2-
debt ratio
total of liabilities/total assets
501000/1188000
0.42
total of liabilities
current liabilities+long term notes payable+other long term liabilities
190000+280000+31000
501000
total of assets
fixed assets+current assets
395000+793000
1188000
3-
Earning per share
net income/no of shares
1.55
net income
99000
no of shares
64000
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