Drummond Company Balance Sheet Assets: Cash and marketable securities $400,000 Accounts receivable 1,415,000 Inventories 1,847,500 Prepaid expenses 24,000 Total current assets 3,686,500 Fixed assets 2,800,000 Less: accum. depr. (1,087,500) Net fixed assets 1,712,500 Total assets $5,399,000 Liabilities: Accounts payable $600,000 Notes payable 875,000 Accrued taxes 92,000 Total current liabilities $1,567,000 Long-term debt 900,000 Common Stock (100,000 shares) 700,000 Retained Earnings 2,232,000 Total liabilities and owner's equity $5,399,000 Net sales (all credit) $6,375,000 Less: Cost of goods sold (4,375,000) Selling and administrative expense (1,000,000) Depreciation expense (135,000) Interest expense (100,000) Earnings before taxes $765,000 Income taxes (306,000) Net income $459,000 1) Based on the information in Table 4-2, the current ratio is A) 2.97. B) 2.46. C) 2.35. D) 2.23. 2) Based on the information in Table 4-2, the acid-test ratio is A) 1.17. B) 1.33. C) 1.39. D) 2.15. 3) Based on the information in Table 4-2, the average collection period is A) 70 days. B) 81 days. C) 89 days. D) 127 days. 4) Based on the information in Table 4-2, the debt ratio is A) 28.12%. B) 34.74%. C) 45.69%. D) 42.03%. 5) Based on the information in Table 4-2, the return on equity is A) 19.33%. B) 18.47%. C) 16.66%. D) 15.65%. 6) Based on the information in Table 4-2, and assuming the company's stock price is $50 per share, the P/E ratio is A) 10.89. B) 14.33. C) 24.44. D) 27.50. 7) Based on the information in Table 4-2, the times interest earned ratio is A) 11.48. B) 5.25. C) 4.88. D) 8.65. 8) Based on the information in Table 4-2, the inventory turnover ratio is A) 1.29 times. B) 2.37 times. C) 4.43 times. D) 2.99 times.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
2 for the following questions.
Table 4-2
Drummond Company
Balance Sheet
|
Assets: |
|
|
|
Cash and marketable securities |
|
$400,000 |
|
Accounts receivable |
|
1,415,000 |
|
Inventories |
|
1,847,500 |
|
Prepaid expenses |
|
24,000 |
|
Total current assets |
|
3,686,500 |
|
Fixed assets |
2,800,000 |
|
|
Less: accum. depr. |
(1,087,500) |
|
|
Net fixed assets |
|
1,712,500 |
|
Total assets |
|
$5,399,000 |
|
|
|
|
|
Liabilities: |
|
|
|
Accounts payable |
|
$600,000 |
|
Notes payable |
875,000 |
|
|
Accrued taxes |
|
92,000 |
|
Total current liabilities |
|
$1,567,000 |
|
Long-term debt |
|
900,000 |
|
Common Stock (100,000 shares) |
|
700,000 |
|
|
|
2,232,000 |
|
Total liabilities and owner's equity |
|
$5,399,000 |
|
|
|
|
|
Net sales (all credit) |
|
$6,375,000 |
|
Less: Cost of goods sold |
|
(4,375,000) |
|
Selling and administrative expense |
|
(1,000,000) |
|
|
|
(135,000) |
|
Interest expense |
|
(100,000) |
|
Earnings before taxes |
|
$765,000 |
|
Income taxes |
|
(306,000) |
|
Net income |
|
$459,000 |
1) Based on the information in Table 4-2, the current ratio is
- A) 2.97.
- B) 2.46.
- C) 2.35.
- D) 2.23.
2) Based on the information in Table 4-2, the acid-test ratio is
- A) 1.17.
- B) 1.33.
- C) 1.39.
- D) 2.15.
3) Based on the information in Table 4-2, the average collection period is
- A) 70 days.
- B) 81 days.
- C) 89 days.
- D) 127 days.
4) Based on the information in Table 4-2, the debt ratio is
- A) 28.12%.
- B) 34.74%.
- C) 45.69%.
- D) 42.03%.
5) Based on the information in Table 4-2, the
- A) 19.33%.
- B) 18.47%.
- C) 16.66%.
- D) 15.65%.
6) Based on the information in Table 4-2, and assuming the company's stock price is $50 per share, the P/E ratio is
- A) 10.89.
- B) 14.33.
- C) 24.44.
- D) 27.50.
7) Based on the information in Table 4-2, the times interest earned ratio is
- A) 11.48.
- B) 5.25.
- C) 4.88.
- D) 8.65.
8) Based on the information in Table 4-2, the inventory turnover ratio is
- A) 1.29 times.
- B) 2.37 times.
- C) 4.43 times.
- D) 2.99 times.
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