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The following is a December 31, 2018, post-closing trial balance for Culver City Lighting, Inc. Account...

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Accounting

The following is a December 31, 2018, post-closing trial balancefor Culver City Lighting, Inc. Account Title Debits Credits Cash $68,000 Accounts receivable 52,000 Inventories 58,000 Prepaidinsurance 28,000 Equipment 120,000 Accumulateddepreciation—equipment $ 47,000 Patent, net 53,000 Accounts payable18,500 Interest payable 8,500 Note payable (due in 10, equal annualinstallments) 140,000 Common stock 83,000 Retained earnings 82,000Totals $ 379,000 $ 379,000 a. Calculate the current ratio. b.Calculate the acid-test ratio. c. Calculate the debt to equityratio.

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4.5 Ratings (711 Votes)

a. Calculations for Current Ratio:-

Current Ratio calculated by Current Assets divided by Current Liabilities.

Current Ratio=(Current Assets/Current Liabilities)

Current Assets=Cash+Accounts Receivable+Inventories+Prepaid Insurance

=$(68,000+52,000+58,000+28,000)

=$206,000

Current Liabilities=Accounts Payable+Interest Payable

=$(18,500+8,500)

=$27,000

Current Ratio=(Current Assets/Current Liabilities)

=(206,000/27,000)

=7.63:1

b. Calculations for Acid - test Ratio:-

Acid - Test Ratio calculated by Quick Assets divided by Current Liabilities.

Acid - Test Ratio=(Quick Assets/Current Liabilities)

Quick Assets= Cash+Accounts Receivable

=$(68,000+52,000)

=$120,000

Acid - Test Ratio=(Quick Assets/Current Liabilities)

=$(120,000/27,000)

=4.44:1

c. Calculations for Debt to Equity Ratio:-

Debt to Equity Ratio calculated by Total Liabilities divided by Stockholders Equity.

Debt to Equity Ratio=(Total Liabilities/Stockholders Equity)

Total Liabilities=Accounts Payable+Interest Payable+Notes Payable

=$(18,500+8,500+140,000)

=$167,000

Stockholders Equity=Common Stock+Retained Earnings

=$(83,000+82,000)

=$165,000

Debt to Equity Ratio=Total Liabilities/ Stockholders Equity

=$(167,000/165,000)

=1.012:1
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