Practice Exercise 12-II: Solvency Ratios

Refer To Doctors Smith and Browns financial statement. West side clinic

1. Set up a worksheet for the solvency ratios.

2. Compute these ratios for Doctors Smith and Doctor Brown. To do so, you will need one additional piece of information that is not present on the doctors statements: their maximum annual debt service is $22,200

it eet ests nic ance Assets December 31, 20X4 December 31, 20X3 Current Assets $190,000 $145,000 Cash and cash equivalents Accounts receivable (net) 250,000 300,000 Inventories 25,000 20,000 Prepaid Insurance 3,0 $470,000 $468,000 Total Current Assets Property, Plant, and Equipment $100,000 $100,000 Land Buildings (net Equipment (ne) 260,000 300,000 Net Property, Plant, and Equipment 360,000 400,000 Other Assets $133,000 $32 Investments Total Other Assets 133,000 32,000 $963,000 $900,000 Total Assets Liabilities and Fund Balance Current Liabilities Current maturities of $52,000 $48,000 long-term debt Accounts payable and accrued expenses 293,000 302,000 $345,000 Total Current Liabilities $850,000 $252,000 $300,000 Long-Term Debt Less Current Maturities of Long-Term Debt 52,000 48,000 200,000 Net Long-Term Debt 252,000 Total Liabilities $545,000 $602,000 Fund Balances $418,000 $298,000 Unrestricted fund balance Restricted fund balance Total Fund Balances 418 298,0 Total Liabilities and Fund Balance $963,000 $900,000 Exhibit 11-2 sets out the result of operations for two years, with the most current period in the left column. If the balance sheet is a snapshot, then the statement of revenue and expenses is a diary, because it is a record of transactions over the period of a year. Operating 121 610