Question

Prepare a classified balance sheet. Assume that $13,600 of the note payable will be paid in 2023.The following items are taken from the financial statements of Carmen Co. at December 31, 2022.Prepare a classified balance sheet.Land      $195,600Accounts receivable 21,700Supplies 9,200Cash 11,840Equipment 82,400Buildings 261,200Land improvements 45,780Notes receivable (due in 2023) 5,300Accumulated depreciation—land improvements 12,600Common stock 75,000Retained earnings (December 31, 2022) 495,000Accumulated depreciation—buildings 32,600Accounts payable 9,500Mortgage payable 93,600Accumulated depreciation—equipment 18,720Interest payable 3,600Income taxes payable 14,700Patents 46,700Investments in stock (long-term) 71,500Debt investments (short-term) 4,100Also compute the current ratio and debt to assets ratio. What do the numbers mean?

Answer 1

Answer:

A) See attached file for Balance Sheet

B) Current ratio = 1.26

C) Debt to Asset ratio = 18%

The Current ratio tells us that the company has 1.26 dollars of current assets to cover 1 dollar of current debt. That is a good thing, but to know if it´s enough covers, further information is needed. Others ratios can help to complete the picture as for example, quick ratio, assets turn over, inventory turn over, receivables turn over, etc. The debt to assets ratio. Tells us that the company owes 18% of its assets. The rest belongs to the stockholders. Again, it´s a good thing, but further information can help us to know if the company can invest in new projects, financing it with debt in a profitable way, for example, if Return on Assets is higher than debt rate.

Explanation:

B) Current ratio = Current Assets / Current Liabilities

   Current ratio = 52,140 / 41,400

   Current ratio = 1.26

C)Debt to Asset ratio = (Total Liabilities / Total Assets)*100

   Debt to Asset ratio = (121,400 / 691,400)*100

   Debt to Asset ratio = 18%

The current ratio measures a company's ability to pay short-term obligations or those due within one year, by relating current assets with current liabilities (liquidity ratio). The debt to total assets ratio shows the percentage of a company's total assets that were financed by creditors (financial ratio).