Short Problems
1.Smith Company has total assets, liabilities, and shareholders' equity of $20,000, $7,000, and $13,000, respectively, at the beginning of 2010. At the end of 2010, total assets, liabilities, and shareholders' equity were reported at $16,000, $5,000, and $11,000, respectively.
A.How much additional debt can Smith incur and still have its debt/equity ratio remain less than or equal to 1.00?
B.What information does the debt/equity ratio provide you?
2.
Monroe Company has current assets, current liabilities, and long-term liabilities of $12,000, $3,000, and $9,000, respectively. Within these amounts, $1,000 is accounts payable, and $1,500 is accounts receivable. What effect will the payment of the accounts payable have on the current ratio? Should Monroe pay the accounts payable on the last day of the year? Explain.
3.Using the two solvency ratios (current and quick), indicate whether Carter’s solvency position improved or deteriorated during 2010.
4.
If the industry in which Carter is a member has an average accounts receivable turnover of 27 times, determine if in 2010, Carter is more or less efficient at converting sales to cash than the average firm in its industry. Assume all sales were credit sales.