Question 4.

An entity has $330 000 of assets including current assets of $90 000. The

following information has also been ascertained about the entity:

The two owners have contributed $75 000 each.

The entity has always distributed all the profits via a family trust.

The entity owes $65 000 to trade creditors and other creditors.

The remainder of the entitys financing is via a mortgage loan.

The entity made a profit this year (before tax) of $35 000.

The profit figure includes $15 000 of interest associated with the loan.

Required

Which of the following statements is correct?

a. The entitys current ratio is 2:1.

b. The entity uses more debt financing that equity financing.

c. The entitys net assets are $265 000.

d. The entitys debt ratio is 55 per cent.