An entity has $660000 of assets, including current assets of $180000. The following information has also been
Question:
An entity has $660000 of assets, including current assets of $180000. The following information has also been ascertained about the entity.
• The two owners have contributed $150000 each.
• The entity has always distributed all the profits via a family trust.
• The entity owes $130000 to trade creditors and other creditors.
• The remainder of the entity’s financing is via a mortgage loan.
• The entity made a profit this year (before tax) of $70000.
• The profit figure includes $30000 of interest associated with the loan.
Required
Which of the following statements is correct?
(a) The entity’s current ratio is 2:1.
(b) The entity uses more debt financing than equity financing.
(c) The entity’s net assets are $530000.
(d) The entity’s debt ratio is 55 per cent.
Step by Step Answer:
Accounting Business Reporting For Decision Making
ISBN: 9780730369325
7th Edition
Authors: Jacqueline Birt, Keryn Chalmers, Suzanne Maloney, Albie Brooks, Judy Oliver, David Bond