The following accounts are taken from the financial statements of Edington Compa
ID: 2353105 • Letter: T
Question
The following accounts are taken from the financial statements of Edington Company. The accounts are in alphabetical order.
accounts payable $28,000 net sales 500,000
accounts receivable 65,000 other current liabilities 20,000
average common shares o/s 20,000 salaries payable 7,000
cash 56,000 stockholder's equity 169,000
gross profit 190,000 total assets 325,000
net income 50,000 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