Question

Use the following selected data from Business Solutions’s income statement for the three months ended March 31, 2020, and from its March 31, 2020, balance sheet to complete the requirements.
Computer services revenue $ 29,466
Net sales (of goods) 20,820
Total sales and revenue 50,286
Cost of goods sold 14,424
Net income 20,709
Quick assets 89,224
Current assets 97,736
Total assets 123,672
Current liabilities 855
Total liabilities 855
Total equity 122,817

Required:
1. Compute the gross margin ratio (both with and without services revenue) and net profit margin ratio.
2. Compute the current ratio and acid-test ratio.
3. Compute the debt ratio and equity ratio.
4. What percent of its assets are current? What percent are long term?

Answer 1

Answer:

1. Gross margin with service revenue

Gross margin = Total revenue- Cost of good sold

Gross margin = 50,286 - 14,424

Gross margin = $35,862

Gross margin ratio = 34498/50,286 *100

Gross margin ratio = 68.60%

Gross margin without service revenue

Gross margin = Net (good) sale - Cost of good sold

Gross margin = 20,820 - 14,424

Gross margin = $6,396

Gross margin ratio = 6,396/20,820*100

Gross margin ratio = 30.72%

Profit margin ratio = 20,709/50,286*100

Profit margin ratio = 41.18%

2. Current ratio = Current assets/Current liabilities

Current ratio = 97,736/855

Current ratio = 114:1

Acid test ratio = Quick assets/current liabilities

= 89,224/855

= 104 : 1

3. Debt ratio= Current liabilities/total assets

Debt ratio= 855/123,672

Debt ratio= 0.0069134

Debt ratio= 0.69%

Equity ratio= Total equity/total assets

Equity ratio= 122,817/123,672

Equity ratio= 0.993087

Equity ratio= 99.31%