inventories $4200,000
total $14000,000
current ratio 2.25
acid-test ratio 1.2
debt to equity ratio 1.8
Answer for 3-18
1. Acid-test ratio = 1.20
Acid-test ratio = Quick assets ÷ Current liabilities =
Quick assets = Current assets - Inventories
So a new definition of Quick assets = Current assets - $840,000
Current Ratio
Current Ratio = Current assets ÷ Current liabilities = 2.25
Acid-test Ratio = Current assets - $840,000 ÷ Current liabilities = 1.20
Therefore just inventory =
$840,000 ÷ Current liabilities = 1.05
Divide both sides by 1.05, then
Current liabilities = $800,000
Substitute current liabilities into the Current Ratio equation
Current Ratio = Current assets ÷ Current liabilities =
2.25 = Current assets ÷ $800,000
Multiply both sides by 800,000
Current assets =
2. Debt to equity ratio = Total liabilities ÷ Shareholders' equity = 1.8
Total liabilities + Shareholders' equity = Total assets
Total assets are $2,800,000, so Total assets equal
Total liabilities + Shareholders' equity = $2,800,000
So total liabilities are 1.8 times as big as shareholders equity
Let x equal shareholders' equity
1.8 x + x = $2,800,000
2.8x = $2,800,000
Divide both sides by 2.8
x = = Shareholders' equity
3. Noncurrent assets = Total assets - Current assets
Noncurrent assets = $2,800,000 - 1,800,000 =
4. Long-term liabilities = Total assets - Current liabilities - Shareholders' equity Long-term liabilities = $2,800,000 - 800,000 - 1,000,000 =