ABC Company Partial Balance Sheet December 31, 2017 December 31, 2016 Assets (in
ID: 2563097 • Letter: A
Question
ABC Company Partial Balance Sheet December 31, 2017 December 31, 2016 Assets (in no particular order): Cash Property, Plant and Equipment Accounts Receivable Inventory Prepaid Rent Long-term Notes Receivable Marketable Investment Securities $120,000 90,000 540,000 120,000 300,000 8,000 150,000 50,000 520,000 140,000 260,000 7,500 120,000 60,000 Liabilities (in no particular order): Accounts Payable Short-term Notes Payable Wages Payable Long-term Debt Income Tax Payable 100,000 80,000 10,000 300,000 210,000 10,000 8,500 280,000 25, 500 30,000Explanation / Answer
1)Both Accounts receivable turnover(Activity) ratio) and rate earned on total asset(profitability ratio) is not a liquidity ratio.
If one option is to be selected ,Rate earned on total asset is not a liquidity ratio
2)current asset :90000cash+120000Accounts receivable+300000Inventory+8000prepaid rent+50000marketable security=568000
Current liability = 100000Accounts payable+80000short term notes payable+10000wages payable+30000IT payable=220000
Quick ratio =[Current asset -inventory -prepaid rent ]/current liability
= [568000-300000-8000]/220000
= 1.18
correct option is "c"
3)correct option is "C"
Times interest earned = Earning before interest and tax /Interest
= 120000/11000 = 10.9
4()Average receivable = [120000+140000]/2=130000
days in sales =365*average receivable /net sales
= 365*130000/1000000
= 47.45 days [rounded to 47.5]
correct option is "C"
5)Total asset =90000+5400000+120000+300000+8000+50000=1258000
Total liabilites= 100000+80000+10000+300000+30000=520000
equity =Total asset -total liability
= 1258000-520000
= $ 738000
Total liabilites /total equity = 520000/738000
= .705 or 70.5%
correct option is "C"
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