Chapter 2: 22BP_b (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:
b. Quick ratio.

Expert verified

Quick ratio of the stud clothier company is 1.2.

Step by step solution

$\begin{array}{rcl} Quick assets & = & Cash + Accounts receivables \\ = & $ 60, 000 + $ 240, 000 \\ = & $ 300, 000 \end{array}$

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

$\begin{array}{rcl} Quick ratio & = & \frac{Quick assets}{Current liabilities} \\ = & \frac{$ 300, 000}{$ 250, 000} \\ = & 1.2 \end{array}$

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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

Times mirror and glass company
Sales	\)126,000
Less: Cost of goods sold	93,000
Gross profit	\(33,000
Less: selling and administrative expenses	11,000
Lease Expenses	4,000
Operating profit*	\)18,000
Less: Interest expenses	3,000
Earning before taxes	\(15,000
Less: Taxes (30%)	4,500
Earning after taxes	\)10,500

	20X1	20X2
Sales	\(3,230,000	\)3,370,000
Cost of goods sold	2,130,000	2,850,000
Gross profits	\(1,100,000	\)520,000
Selling and administrative expenses	298,000	227,000
Operating profits	\(802,000	\)293,000
Interest expense	47,200	51,600
Income before taxes	\(754,800	\)241,400
Taxes (35%)	264,180	84,490
Income after tax	\(490,620	\)156,910