Long$-$term Liabilities

Total Long$-$Term Liabilities

Total Liabilities

Owners' Equity

Common shares

$1,880,000$

Total Owners' Equity

Total Liabilities and Owners' Equity

Now complete the income statement. $($Round amounts to the nearest whole dollar. Use parentheses or a minus sign for a net loss.$)$ b$.$ Show how information from financial ratios can indicate whether Salvador Industries can manage an unusual and unexpected event, such as the flood, without threatening its existence as a viable business.

Calculate the current ratio.

The current ratio is

$($Round to two decimal places as needed.$)$

Now calculate the acid$-$test ratio.

The acid$-$test ratio is

$($Round to two decimal places as needed.$)$

Now calculate the equity ratio.

The equity ratio is

$($Round to two decimal places as needed.$)$

Now find the return$-$on$-$assets ratio.

The return$-$on$-$assets ratio is $\%.$

$($Round to two decimal places as needed.$)$

Use the financial ratios to indicate whether Salvador Industries can manage an unusual and unexpected event, such as the flood, without threatening its existence as a viable business. Select all that apply.

A$.$ The current and acid test ratios are both low, which means the company may not have the assets to cover obligations or losses from extraordinary events.

B$.$ The equity ratio is slightly low, indicating reliance on debt financing, which makes it harder to cover a loss from an extraordinary event.

C$.$ The return$-$on$-$assets ratio is low, which means a loss from an extraordinary event would take a large portion of its after$-$tax income.

D$.$ The equity ratio is very high, indicating the company does not rely on debt financing, which makes it easy to cover a loss from an extraordinary event.

E$.$ The current and acid test ratios are high, which mean the company has considerable security in meeting obligations and losses from extraordinary events.

F$.$ The return$-$on$-$assets ratio is high, which means a loss from an extraordinary event would take only a small portion of its pre$-$tax income.Salvador Industries bought land and built its plant $20$ years ago. The depreciation on the building is calculated using the straight$-$line method, with a life

of $30$ years and a salvage value of $$57,000.$ Land is not depreciated. The depreciation for the equipment, all of which was purchased at the same time

the plant was constructed, is calculated using declining balance at $20$ percent. Salvador currently has two outstanding loans: one for $$56,000$ due

December $31,2020,$ and another one for which the next payment is due in four years.

During April $2020,$ there was a flood in the building because a nearby river overflowed its banks after unusually heavy rains. Pumping out the water and

cleaning up the basement and the first floor of the building took a week. Manufacturing was suspended during this period and some inventory was

damaged. Due to inadequate insurance, this unusual and unexpected event cost the company $$104,000,$ net.

a$.$ Complete the balance sheet and income statement, using any of the above information that is necessary.

b$.$ Show how information from financial ratios can indicate whether Salvador Industries can manage an unusual and unexpected event, such as

the flood, without threatening its existence as a viable business.

First, complete the balance sheet. Start by completing the assets portion and then the liabilities and owners' equity portions. $($Round amounts to the

nearest whole dollar.$)$