Charles Royston was checking the year- end blances for his wood furniture manufa
ID: 2376440 • Letter: C
Question
Charles Royston was checking the year- end blances for his wood furniture manufacturing & business & was concerned about the numbers. From what he remembered, his debts & accounts receivable were higher that the previous year. Rather than get worked up over nothing, he decided he would gather the information & make a comparison. For Dec 31, 2011, the business had current assets of: $1,844 cash, $11,807 accounts receivable, & $9,628 inventory. Plant & equipment totaled $158,700. Current liabilities were: accounts payable $13,446; wages payable $650; & property & taxes payable $4,124. Long term debt totaled $92,800 & owner's equity $70,959. By comparison, for Dec 31, 2010, the business had current assets of: $3,278 cash; $6,954 accounts receivable; $17,417 inventory. Plant & equipment totaled $144,500. Current liabilities were: accounts payable $9,250; wages payable $1,110; property & taxes payable $3,650. Long term debt totaled $75,800; & owner's equity $82,339.
1. Construct a comparative balance sheet for Contemporary Wood Furniture for year-end 2010 & 2011, including a vetical & horizontal analysis of the comparative balance sheet. Express percents to the nearest tenth of a percent.
2. Calculate the current ratio & the total debt to total assets ratio for 2010 & 2011.
can you show the step by step solution to the answer.
Explanation / Answer
Current ratio is the ratio of current assets of a business to its current liabilities. It is the most widely used test of liquidity of a business and measures the ability of a business to repay its debts over the period of next 12 months.
Current ratio is calculated using the following formula:
Current Ratio = Current Assets Current Liabilities