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

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

Transcribed Image Text:

Prior Company Balance Sheet Dec. 31, 2019 Dec. 31, 2020 $ 52,000 $ 60,000 Cash Accounts receivable (net) 198,000 80,000 Short-term investments 80,000 40,000 Inventory Prepaid expenses 440,000 360,000 3,000 7,000 $ 773,000 $ 547,000 Total current assets Property, plant, and equipment (net) 857,000 853,000 Total assets $1,630,000 $1,400,000 Current liabilities 240,000 160,000 Bonds payable Common stockholders' equity 400,000 400,000 840,000 990,000 Total liabilities and stockholders' equity $1,630,000 $1,400,000