Chapter 2: 22BP_a (page 82)

The balance sheet for Stud Clothiers is shown below. Sales for the year were $2,400,000, with 90 percent of sales sold on credit.
Stud Clothier
Balance sheet 20X1
Assets
Liabilities and Equity
Cash
$60,000
Account payable
$220,000
Account receivable
240,000
Accrued taxes
30,000
Inventory
350,000
Bonds payable (long term)
150,000
Plant and equipment
410,000
Common stock
80,000
Paid in capital
200,000
Retained earnings
380,000
Total assets
$1,060,000
Total LIbilities and Equity
$1,060,000
Compute the following:
a. Current ratio

Short Answer

Expert verified

Current ratio of the stud clothier company is 2.6.

Step by step solution

Current assets

$\begin{array}{rcl} Current assets & = & Cash + Accounts receivable + Inventory \\ = & $ 60, 000 + $ 240, 000 + $ 350, 000 \\ = & $ 650, 000 \end{array}$

Current liabilities

$\begin{array}{rcl} Current liabilities & = & Accounts payable + Accrued taxes \\ = & $ 220, 000 + $ 30, 000 \\ = & $ 250, 000 \end{array}$

Calculation of current ratio

$\begin{array}{rcl} Current ratio & = & \frac{Current assets}{Current liabilities} \\ = & \frac{$ 650, 000}{$ 250, 000} \\ = & 2.6 \end{array}$

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	20X1	20X2
Sales	\(8,000,000	\)10,000,000
Cost of goods sold	6,000,000	9,000,000
Inventory	800,000	1,000,000

	Capable corporation	Muli-media inc
Net income	\(31,200	\)140,000
Sales	317,000	2,700,000
Total assets	402,000	965,000
Total debts	163,000	542,000
Stockholder’s equity	239,000	423,000

Lancaster corporation
Sales	\(246,000
Cost of goods sold	122,000
Gross profit	\)124,000
Fixed charges (other than interest)	27,500
Income before interest and taxes	\(96,500
Interest	21,800
Income before taxes	\)74,700
Taxes (35%)	26,145
Income after taxes	$48,555

Short Answer

Step by step solution

Current assets

Current liabilities

Calculation of current ratio

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Stud Clothier
Balance sheet 20X1
Assets		Liabilities and Equity
Cash	\)60,000	Account payable	\(220,000
Account receivable	240,000	Accrued taxes	30,000
Inventory	350,000	Bonds payable (long term)	150,000
Plant and equipment	410,000	Common stock	80,000
		Paid in capital	200,000
		Retained earnings	380,000
Total assets	\)1,060,000	Total LIbilities and Equity	$1,060,000