Following is the balance sheet of Finch Company for 2018: The average number of
ID: 2557526 • Letter: F
Question
Following is the balance sheet of Finch Company for 2018:
The average number of common stock shares outstanding during 2018 was 890 shares. Net income for the year was $14,700.
Required
Compute each of the following: (Round your answers to 2 decimal places.)
a. Current Ratio
b. Earnings Per Share (per share)
c. Quick (acid-test) ratio
d. Return on Investment
e. Return on equity
f. Debt to equity ratio
FINCH COMPANYBalance sheet Assets Cash $ 14,500 Marketable securities 7,620 Accounts receivable 13,160 Inventory 10,500 Property and equipment 167,500 Accumulated depreciation (12,700 ) Total assets $ 200,580 Liabilities and Stockholders’ Equity Accounts payable $ 8,450 Current notes payable 3,600 Mortgage payable 4,000 Bonds payable 22,020 Common stock 114,600 Retained earnings 47,910 Total liabilities and stockholders’ equity $ 200,580
Explanation / Answer
a. Current Ratio = Current assets / current liabilities
=45780 / 16050
= 2.85
Note:- current liabilities =Accounts payable + Current notes payable + Mortgage payable
Current assets = Cash + Marketable securities + Accounts receivable + Inventory
b. Earnings Per Share (per share) = net income / average number of common stock shares outstanding during 2018
= $14,700. / 890
=16.52
c. Quick (acid-test) ratio = [Total current assets - 10,500] / current liabilities
=35280 / 16050
= 2.20
d. Return on Investment = net income / Total assets
=$14,700 / 200,580
= 7.33%
e. Return on equity =net income / shareholder's equity
=$14,700 / 162510
= 9.05%
Note:- shareholder's equity = Common stock+ Retained earnings
f. Debt to equity ratio = Total liability / total shareholder's equity
= 38070 / 162510
= 0.23