Sprague Company has been operating for several years, and on December 31, 2020, presented the following balance sheet. Sprague CompanyBalance SheetDecember 31, 2020 Cash $ 40,000 000$ Accounts payable $ 80,000 Receivables 75,000 Mortgage payable 140,000 Inventory 95,000 Common stock ($1 par) 150,000 Plant assets (net) $220,000 Retained earnings $460,000 $430,000 $430,000 The net income for 2020 was $25,000. Assume that total assets are the same in 2019 and 2020. Instructions Compute each of the following ratios. For each of the four, indicate the manner in which it is computed and its significance as a tool in the analysis of the financial soundness of the company. a. Current ratio. b. Acid-test ratio. c. Debt to assets ratio. d. Return on assets.
Sprague Company has been operating for several years, and on December 31, 2020, presented the following balance sheet. Sprague CompanyBalance SheetDecember 31, 2020 Cash $ 40,000 000$ Accounts payable $ 80,000 Receivables 75,000 Mortgage payable 140,000 Inventory 95,000 Common stock ($1 par) 150,000 Plant assets (net) $220,000 Retained earnings $460,000 $430,000 $430,000 The net income for 2020 was $25,000. Assume that total assets are the same in 2019 and 2020. Instructions Compute each of the following ratios. For each of the four, indicate the manner in which it is computed and its significance as a tool in the analysis of the financial soundness of the company. a. Current ratio. b. Acid-test ratio. c. Debt to assets ratio. d. Return on assets.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Sprague Company has been operating for several years, and on December 31, 2020, presented the following balance sheet.
| Sprague Company Balance Sheet December 31, 2020 |
||||
| Cash |
$ 40,000
|
000$ | Accounts payable |
$ 80,000
|
| Receivables |
75,000
|
Mortgage payable |
140,000
|
|
| Inventory |
95,000
|
Common stock ($1 par) |
150,000
|
|
| Plant assets (net) |
$220,000
|
$460,000
|
||
|
$430,000
|
$430,000
|
The net income for 2020 was $25,000. Assume that total assets are the same in 2019 and 2020.
Instructions
Compute each of the following ratios. For each of the four, indicate the manner in which it is computed and its significance as a tool in the analysis of the financial soundness of the company.
a.
b. Acid-test ratio.
c. Debt to assets ratio.
d. Return on assets.
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