9.6 Report liabilities on the balance sheet 1) Having liabilities classified incorrectly will have a big impact on the company's current and quick ratios. 2) Mackey Company has a 5-year...

9.6 Report liabilities on the balance sheet

1) Having liabilities classified incorrectly will have a big impact on the company's current and quick ratios.

2) Mackey Company has a 5-year mortgage for $100,000. In the first year of the mortgage, Mackey will report this liability as a:

A) current liability of $100,000.

B) long-term liability of $100,000.

C) current liability of $80,000 and a long-term liability of $20,000.

D) current liability of $20,000 and a long-term liability of $80,000.

E) current liability of $80,000 and a long-term debt of $20,000.

3) According to the text, which current liability is generally listed first?

4) What effect will there be on reported liabilities and net income if a company does NOT accrue warranty expense?

9.7 Compute the debt ratio

1) The percentage of total assets of a company that it would take to pay off all of the company's liabilities is called the debt ratio.

2) Both the formulas for current ratio and debt ratio use current liabilities in the computation.

3) Bill Company had total assets of $560,000; total liabilities of $250,000; and total shareholders' equity of $310,000. Bill Company's debt ratio is:

A) 55.4%.

B) 80.6%.

C) 44.6%.

D) 28.7%.

E) 66.4%.

4) Jewell Company has current assets of $56,000; long-term assets of $135,000; current liabilities of $44,000; and long-term liabilities of $90,000. Jewell Company's debt ratio is:

A) 127.3%.

B) 78.6%.

C) 239.3%.

D) 70.2%.

E) 20.7%.

5) Amanda Industries had total assets of $600,000; total liabilities of $175,000; and total shareholders' equity of $425,000. Calculate Amanda Industries' debt ratio.

6) Is a high debt ratio a bad thing? Explain.

7) John Company has current assets of $59,000; long term assets of $129,000; current liabilities of $31,000, and long-term liabilities of $83,000. Calculate John Company's current ratio and debt ratio.

8) Based on the below information for December 31st, calculate the current ratio and debit ratio for each year. Indicate whether or not the company's ability to meet its current obligations and pay its overall debt has improved or deteriorated.