Question

Based on the above financial statements, calculate the following ratios for 2021: income statement Sales 480,000 cost of goods sold 243,200 salaries expense 55,200 depreciation expense 24,000 interest expense 4,500 rent expense 36,000 gain on equipment 0 loss on equipment disposal 1,400 364,300 net income 115,700 Statement of Retained Earnings Beginning Balance - Retained Earnings $ 36,300 Plus - Net Income 115,700 Less - Dividends (18,000) Ending Balance - Retained Earnings $ 134,000 Balance sheets 2020 2021 change Assets: Cash 27,500 72,600 45,100 Accounts Receivable 32,600 47,600 15,000 Inventory 48,000 54,800 6,800 prepaid expenses 7,200 5,200 (2,000) Equipment 56,000 77,000 21,000 Accum. Depr - Equipment (26,500) (32,500) (6,000) total assets 144,800 224,700 Liabilities: Accounts Payable 12,700 25,700 13,000 accrued Liabilities 3,800 5,000 1,200 Bonds Payable 72,000 40,000 (32,000) total liabilities 88,500 70,700 shareholders Equity: Common Stock 20,000 20,000 0 Retained Earnings 36,300 134,000 97,700 total equity 56,300 154,000 total liabilities and shareholder equity 144,800 224,700 A. Current Ratio B. Gross Profit Percentage C. Debt Ratio D. Debt to Equity Ratio

Answer 1

Answer:

A. Current Ratio = 5.87

B. Gross Profit Percentage = 49.33%

C. Debt Ratio = 0.31

D. Debt to Equity Ratio = 0.46

Explanation:

The ratios can be calculated for 2021 as follows:

A. Current Ratio

Current ratio = Current assets / Current liabilities ………………… (1)

Where:

Current assets = Current assets in 2021 = Cash in 2021 + Accounts Receivable in 2021 + Inventory in 2021 + Prepaid expenses in 2021 = $72,600 + $47,600 + 54,800 + $5,200 = $180,200

Current liabilities = Current liabilities in 2021 = Accounts Payable in 2021 + accrued Liabilities in 2021 = $25,700 + $5,000 = $30,700

Substituting the values into equation (1), we have:

Current ratio = 180,200 / 30,700 = 5.87

B. Gross Profit Percentage

Gross Profit Percentage = (Gross profit / Sales) * 100 ………………….. (2)

Where:

Gross profit = Sales – Cost of goods sold = $480,000 - $243,200 = $236,800

Sales = $480,000

Substituting the values into equation (2), we have:

Gross Profit Percentage = ($236,800 / $480,000) * 100 = 49.33%

C. Debt Ratio

Debt ratio = Total debts / Total assets …………………………….. (3)

Where:

Total debts = Total liabilities in 2021 = $70,700

Total assets = total assets in 2021 = $224,700

Substituting the values into equation (3), we have:

Debt ratio = $70,700 / $224,700 = 0.31

D. Debt to Equity Ratio

Debt to Equity Ratio = Total debts / Total equity …………………………….. (4)

Total debts = Total liabilities in 2021 = $70,700

Total equity = total equity in 2021 = $154,000

Substituting the values into equation (4), we have:

Debt to Equity Ratio = $70,700 / $154,000 = 0.46