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Pharoah Company has been operating for several years, and on December 31, 2017, presented the following balance sheet. PHAROAH COMPANY BALANCE SHEET DECEMBER 31, 2017 102,500 Plant assets (net)220,000 $432,800 Cash Receivables Inventory $41,400 Accounts payable 68,900 Mortgage payable $77,500 128,000 150,300 77,000 $432,800 Common stock ($1 par) Retained earnings The net income for 2017 was $26,600. Assume that total assets are the same in 2016 and 2017. Compute each of the following ratios. (Round answers to 2 decimal places, e.g. 1.59 or 45.87%.) (a) Current ratio (b) Acid-test ratio (c) Debt to assets ratio (d) Return on assets
Expert Answer
| Answer a | ||||||||
| Current ratio = Current assets / Current Liabilities | ||||||||
| Current assets = Cash + Receivables + Inventory = $41400+$68900+$102500 = $212800 | ||||||||
| Current Liabilities = Accounts Payable = $77500 | ||||||||
| Current ratio = $212800/$77500 = 2.75 times | ||||||||
| Answer b | ||||||||
| Acid test ratio = Liquid current assets / Current liabilities | ||||||||
| Liquid Current assets = Cash + Receivables = $41400+$68900 = $110300 | ||||||||
| Acid test ratio = $110300/$77500 = 1.42 times | ||||||||
| Answer c | ||||||||
| Debt to assets ratio = Total Liabilities / Total assets | ||||||||
| Total Liabilities = Accounts Payable + Mortgage payable = $77500+$128000 = $205500 | ||||||||
| Total assets = $432800 | ||||||||
| Debt to assets ratio = $205500/$432800 = 47.48% | ||||||||
| Answer d | ||||||||
| Return on assets = Net Income / Average total assets | ||||||||
| Return on assets = $26600 / $432800 = 6.15% | ||||||||
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