The following accounts are taken from the financial statements of Edington Compa
ID: 2351772 • Letter: T
Question
The following accounts are taken from the financial statements of Edington Company. The accounts are in alphabetical order.AP 28,000
AR 65,000
Average common shares O/S 20,000
Cash 56,000
Gross Profit 190,000
Net Income 50,000
Net Sales 500,000
Other Current Liabilities 20,000
Salaries payable 7,000
Stockholders's equity 169,000
Total assets 325,000
Total liabilities 156,000
Instructions
Compute the following:
(a) Current ratio
(b) Working capital
(c) Earnings per share
(d) Debt to total assets ratio
Explanation / Answer
(a) current ratio
current ratio = current assets/ current liabilities = (65,000(AR) + 56,000(cash))/(28,000(AP) + 20,000(other current liabilities)+ 7,000(salaries pyable)) = 2.2
(b) working capital
Working capital = current asets - current liabilities = (65,000 + 56,000) - (28,000 + 20,000 + 7,000) = 66,000
(c) earning per income
earning per share = net income/# of shares outstanding = 50,000/20,000 = 2.5
(d) debt to total assets ratio
debt to total assets ratio = total liabilities/ total assets = 156,000/325,000 = 0.48