The following information is taken from the financial statements of Knights, Inc.

From the balance sheet:
Cash		30.000 $
Accounts receivable		150.000
Inventory		200.000
Factory assets (after deducting accumulated depreciation)		500.000
current liabilities		150.000
Total equity		300.000
Total assets		1.000.000
From the income statement:
net sales		1.500.000 $
cost of goods sold		1.080.000
operating expenses		315.000
interest expense		84.000
income tax expense		6.000
Net income		15.000
From the cash flow statement:
Net cash from operating activities (including $79,000 of interest paid)		40.000 $
Net cash used in investing activities		(46.000)
Financial movements:
Borrowed amounts	50.000 $
Repayment of borrowed amounts	(14.000)
dividend payment	(20.000)
Net cash from financing activities		16.000
Net increase in cash during the year		10.000 $

Instructions

1. Explain how the interest expense shown on the income statement could be $84,000 when the interest payment shown on the cash flow statement is only $79,000.

2. Compute the following:

1. Current ratio
2. Quick ratio
3. Working capital
4. Debt ratio

3. Compute the following ratios (assume that the year-end amounts of total assets and total stockholders' equity also represent the average amounts throughout the year).

1. Return on assets
2. Return on equity

Interpret the company's performance under these metrics. Explain why return on assets and return on equity are so different.

Discuss

( 1 ) the apparent security of long-term creditors' receivables and ( 2 ) the prospects for Knights, Inc., maintaining its dividend payments at the current level.