Question

Compute the specified ratios using Hilda Company's balance sheet at December 31, 2011.AssetsCash $14,000Marketable securities 7,000Accounts receivable 14,000Inventory 11,000Property and equipment 170,000Accumulated depreciation (11,500)Total assets $204,500EquitiesAccounts payable $8,500Current notes payable 3,500Mortgage payable 4,500Bonds payable 23,000Common stock 105,000Retained earnings 60,000Total liabilities and stockholders' equity $204,500The average number of common stock shares outstanding during 2011 was 850 shares.Net income for the year was $15,000.Round your answer to 2 decimal places.Required:1. Compute each of the following:a) Current ratio.b) Earnings per share.c) Quick (acid-test) ratio.d) Return on investment.e) Return on equity.f) Debt to equity ratio.

Answer 1

Answer:

a) Current ratio.

= Current assets/ current liabilities

= ( Cash + Marketable securities+ Accounts receivable + Inventory) / (Accounts Payable + Current notes payable )

= (14,000 + 7,000 + 14,000 + 11,000) / ( 8,500 + 3,500)

= 3.83

b) Earnings per share.

= Net Income / Common stock outstanding

= 15,000 / 850

= $17.65

c) Quick (acid-test) ratio.

= (Current assets - Inventory ) / Current liabilities

= (14,000 + 7,000 + 14,000) / ( 8,500 + 3,500))

= 2.92

d) Return on investment.

= Net Income/ total assets

= 15,000 / 204,500

= 7.33%

e) Return on equity.

= Net Income / Common equity

= 15,000 / ( Common stock + retained earnings)

= 15,000 / 165,000

= 9.09%

f) Debt to equity ratio.

= Debt / Equity

= ( Accounts payable + Current notes payable + Mortgage payable + Bonds payable) / 165,000

= (8,500 + 3,500 + 4,500 + 23,000) / 165,000

= 23.94%