Prior Company’s condensed financial statements provide the following information. Prior CompanyBalance Sheet Dec. 31, 2020 000 Dec. 31, 2019 Cash $1,052,000) $1,060,000) Accounts receivable (net) 198,000) 80,000) Short-term investments 80,000) 40,000) Inventory 440,000) 360,000) Prepaid expenses #1,603,000) #1,607,000) Total current assets $0,773,000) $0,547,000) Property, plant, and equipment (net) $1,857,000) $1,853,000) Total assets $1,630,000) $1,400,000) Current liabilities 240,000) 160,000) Bonds payable 400,000) 400,000) Common stockholders’ equity $1,990,000) $1,840,000) Total liabilities and stockholders’ equity $1,630,000) $1,400,000) 00 Income StatementFor the Year Ended 2020 Sales revenue $1,640,000) Cost of goods sold $ (800,000) Gross profit 840,000) Selling and administrative expenses (440,000) Interest expense 00.(40,000) Net income $ 360,000) Instructions a. Determine the following for 2020. 1. Current ratio at December 31. 2. Acid-test ratio at December 31. 3. Accounts receivable turnover. 4. Inventory turnover. 5. Return on assets. 6. Profit margin on sales. b. Prepare a brief evaluation of the financial condition of Prior Company and of the adequacy of its profits.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Prior Company’s condensed financial statements provide the following information.

Prior Company Balance Sheet
	Dec. 31, 2020	000	Dec. 31, 2019
Cash	$1,052,000)	$1,060,000)
Accounts receivable (net)	198,000)	80,000)
Short-term investments	80,000)	40,000)
Inventory	440,000)	360,000)
Prepaid expenses	#1,603,000)	#1,607,000)
Total current assets	$0,773,000)	$0,547,000)
Property, plant, and equipment (net)	$1,857,000)	$1,853,000)
Total assets	$1,630,000)	$1,400,000)
Current liabilities	240,000)	160,000)
Bonds payable	400,000)	400,000)
Common stockholders’ equity	$1,990,000)	$1,840,000)
Total liabilities and stockholders’ equity	$1,630,000)		$1,400,000)

Income Statement For the Year Ended 2020
Sales revenue	$1,640,000)
Cost of goods sold	$ (800,000)
Gross profit	840,000)
Selling and administrative expenses	(440,000)
Interest expense	00.(40,000)
Net income	$ 360,000)

Instructions

a. Determine the following for 2020.

1. Current ratio at December 31.

2. Acid-test ratio at December 31.

3. Accounts receivable turnover.

4. Inventory turnover.

5. Return on assets.

6. Profit margin on sales.

b. Prepare a brief evaluation of the financial condition of Prior Company and of the adequacy of its profits.

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