Question
The financial statements of Bell Air Ltd appear below: Statements of Financial Position 2017 and 2018 Assets 2018 2017 Cash .................................................................................................. $ 250,000 $ 400,000
The financial statements of Bell Air Ltd appear below: Statements of Financial Position 2017 and 2018 Assets 2018 2017 Cash .................................................................................................. $ 250,000 $ 400,000 Marketable securities ........................................................................ 150,000 600,000 Accounts receivable (net) ................................................................. 500,000 300,000 Inventory ........................................................................................... 1,500,000 1,700,000 Property, plant and equipment (net) ................................................. 1,600,000 2,000,000 Total assets ................................................................................. $4,000,000 $5,000,000
Liabilities and Equity Accounts payable .............................................................................. $ 200,000 $ 300,000 Short-term (current) notes payable ................................................... 400,000 900,000 Debentures (non-current) payable .................................................... 800,000 2,005,000 Share capital ..................................................................................... 1,700,000 1,045,000 Retained earnings ............................................................................. 900,000 750,000 Total liabilities and equity........................................................... $4,000,000 $5,000,000
Income Statement For the year ended 31 December 2018
Net sales ............................................................................................ $3,600,000 Cost of sales ...................................................................................... 1,840,000 Gross profit ....................................................................................... 1,760,000 Expenses Interest expense .......................................................................... $240,000 Selling expenses ......................................................................... 300,000 Administrative expenses ............................................................. 200,000 Total expenses ...................................................................... 740,000 Profit before income tax ................................................................... 1,020,000 Income tax expense .......................................................................... 300,000 Profit after tax ................................................................................... $ 720,000
Additional information: Assume all sales were on account.
Required: a) Compute the following ratios for Bel Air for 2018 : i. Return on ordinary shareholders equity, ii. Quick ratio iii. Debt to total assets iv. Returns on asset
b) Independent of part (a), if below are some selected ratios for Bell Air Ltd for 2019 and 2020, evaluate the entitys liquidity .
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