The 2021 balance sheet for Hallbrook Industries, Inc., is shown below. HALLBROOK INDUSTRIES, INC. Balance Sheet December 31, 2021 ($ in thousands) Assets Cash $ 200 Short-term investments 150 Accounts receivable 200 Inventory 350 Property, plant, and equipment (net) 1,000 Total assets $ 1,900 Liabilities and Shareholders’ Equity Current liabilities $ 400 Long-term liabilities 350 Paid-in capital 750 Retained earnings 400 Total liabilities and shareholders’ equity $ 1,900 The company’s 2021 income statement reported the following amounts ($ in thousands): Net sales $ 4,600 Interest expense 40 Income tax expense 100 Net income 160 Required: 1. Calculate the current ratio. (Round your answer to 2 decimal places.) 2. Calculate the acid-test ratio. (Round your answer to 3 decimal places.) 3. Calculate the debt to equity ratio. (Round your answer to 2 decimal places.) 4. Calculate the times interest earned ratio. (Round your answer to 1 decimal place.)
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.
The 2021
| HALLBROOK INDUSTRIES, INC. | |||
| Balance Sheet | |||
| December 31, 2021 | |||
| ($ in thousands) | |||
| Assets | |||
| Cash | $ | 200 | |
| Short-term investments | 150 | ||
| 200 | |||
| Inventory | 350 | ||
| Property, plant, and equipment (net) | 1,000 | ||
| Total assets | $ | 1,900 | |
| Liabilities and Shareholders’ Equity | |||
| Current liabilities | $ | 400 | |
| Long-term liabilities | 350 | ||
| Paid-in capital | 750 | ||
| 400 | |||
| Total liabilities and shareholders’ equity | $ | 1,900 | |
The company’s 2021 income statement reported the following amounts ($ in thousands):
| Net sales | $ | 4,600 | |
| Interest expense | 40 | ||
| Income tax expense | 100 | ||
| Net income | 160 | ||
Required:
1. Calculate the
2. Calculate the acid-test ratio. (Round your answer to 3 decimal places.)
3. Calculate the debt to equity ratio. (Round your answer to 2 decimal places.)
4. Calculate the times interest earned ratio. (Round your answer to 1 decimal place.)
Ration analysis is a technique which helps in analysing the financial performance of a company. There are various types of ratios which can be computed to evaluate the financial performance. Some of the types of ratios are profitability ratio, solvency ratio, activity ratios, etc.
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