Explanation Given Information: The assets and liabilities of Rayco Inc. for December 31, 2015 are, The assets are $105095 in cash, $6503 in accounts receivable, $190014 in merchandise inventory, $32507 in equipment. The liabilities are $6007 in accounts payable, $4761 in wages payable, $281017 in mortgage note payable. The owner’s capital is $42334. Formula used: Step 1: Find and record the total assets using the steps. 1: List the current assets and draw a single line underneath the last entry. 2: Add the entries and record the total current assets and drawing a single line underneath the total. 3: Repeat step (1) for plant and equipment assets. Repeat step (2) for total plant and equipment asses. 4: Add the category totals and draw a double line underneath the grand total. Total assets = Total current assets + Total plant and equipment Step 2: Find and record the total liabilities using the steps. 1: Repeat step 1(1) for current liabilities and step 1(1) for total current liabilities. 2: Repeat step 1(1) for long term liabilities and step 1(1) for total long-term liabilities. 3: Add the category totals and draw a single line underneath the total. Total liabilities = Total current liabilities + Total long term liabilities Step 3: Find and record the total owner’s equity. 1: List the equity entries and draw a single line underneath the last entry. 2: Add the entries and draw a single line underneath the last entry. Step 4: Find and record the total liabilities and owner’s equality: Ass the total liabilities to the total owner’s equity and draw a double line underneath the grand total. Total liabilities and owner's equality = Total liabilities + Owner's equity Step 5: Confirm that the double line grand totals from step 1 and step 4 are the same. Total Assets = Total liabilities + Owner's equity Step 6: The debt ration calculated using the formula, Debt ratio = Total liabilities Total assets Based on the operation ration the financial analysis is, Debt Ratio Value less than 1 Value = 1 Value greater than 1 0.05 to 0.75 is industry average Too high Dangerously high Calculation: Consider the assets and liabilities of Rayco Inc. for December 31, 2015 are, The assets are $105095 in cash, $6503 in accounts receivable, $190014 in merchandise inventory, $32507 in equipment

Portfolio of Accounting Systems for Small and Medium-Sized Businesses.

11th Edition

ISBN: 9780136857761

Author: National Society of Public Accountants Staff

Publisher: Prentice Hall

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Chapter 21.3, Problem 1-6SC

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To calculate: Find the debt ratio at the end of 2015 for the balance sheet of Rayco Inc. for December 31, 2015 and interpret the results.

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Chapter 21.3, Problem 1-5SC

Chapter 21.3, Problem 1-7SC

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Chapter 21 Solutions

Portfolio of Accounting Systems for Small and Medium-Sized Businesses.

Ch. 21.1 - Prob. 1-1SC Ch. 21.1 - Prob. 1-2SC Ch. 21.1 - Prob. 1-3SC Ch. 21.1 - Prob. 1-4SC Ch. 21.1 - Prob. 2-1SC Ch. 21.1 - Prob. 2-2SC Ch. 21.1 - Prob. 2-3SC Ch. 21.1 - Prob. 2-4SC Ch. 21.1 - Prob. 3-1SC Ch. 21.1 - Prob. 3-2SC

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Find the debt ratio at the end of 2015 for the balance sheet of Rayco Inc. for December 31, 2015 and interpret the results.

Solution Summary: The author explains how to calculate the debt ratio for Rayco Inc. for December 31, 2015 and interpret the results.

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To calculate: Find the debt ratio at the end of 2015 for the balance sheet of Rayco Inc. for December 31, 2015 and interpret the results.

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Chapter 21 Solutions