In: Accounting
The following is a December 31, 2018, post-closing trial balance for Culver City Lighting, Inc. Account Title Debits Credits Cash $ 68,000 Accounts receivable 52,000 Inventories 58,000 Prepaid insurance 28,000 Equipment 120,000 Accumulated depreciation—equipment $ 47,000 Patent, net 53,000 Accounts payable 18,500 Interest payable 8,500 Note payable (due in 10, equal annual installments) 140,000 Common stock 83,000 Retained earnings 82,000 Totals $ 379,000 $ 379,000 a. Calculate the current ratio. b. Calculate the acid-test ratio. c. Calculate the debt to equity ratio.
a. Calculations for Current Ratio:-
Current Ratio calculated by Current Assets divided by Current Liabilities.
Current Ratio=(Current Assets/Current Liabilities)
Current Assets=Cash+Accounts Receivable+Inventories+Prepaid Insurance
=$(68,000+52,000+58,000+28,000)
=$206,000
Current Liabilities=Accounts Payable+Interest Payable
=$(18,500+8,500)
=$27,000
Current Ratio=(Current Assets/Current Liabilities)
=(206,000/27,000)
=7.63:1
b. Calculations for Acid - test Ratio:-
Acid - Test Ratio calculated by Quick Assets divided by Current Liabilities.
Acid - Test Ratio=(Quick Assets/Current Liabilities)
Quick Assets= Cash+Accounts Receivable
=$(68,000+52,000)
=$120,000
Acid - Test Ratio=(Quick Assets/Current Liabilities)
=$(120,000/27,000)
=4.44:1
c. Calculations for Debt to Equity Ratio:-
Debt to Equity Ratio calculated by Total Liabilities divided by Stockholders Equity.
Debt to Equity Ratio=(Total Liabilities/Stockholders Equity)
Total Liabilities=Accounts Payable+Interest Payable+Notes Payable
=$(18,500+8,500+140,000)
=$167,000
Stockholders Equity=Common Stock+Retained Earnings
=$(83,000+82,000)
=$165,000
Debt to Equity Ratio=Total Liabilities/ Stockholders Equity
=$(167,000/165,000)
=1.012:1