An entity has $600,000 of total assets including current assets of $300,000. The following information has also been produced about the entity: The two owners have contributed $200,000 each. The entity has always distributed all the profits. Total Liabilities are $200,000. The entity owes $150,000 to trade creditors/accounts payable. The remainder of the entity’s loan financing is via a mortgage loan. The entity made a Net Profit after tax this year of $60,000. The profit figure includes $20,000 of interest expense associated with the loan. Required: In the boxes provided state whether each statement is true or false. Please also show workings to support your answer in the box provided. a. The entity’s current ratio is 2 : 1. b. The entity’s net assets are $400,000. c. The uses more equity financing than debt financing.
An entity has $600,000 of total assets including current assets of $300,000. The following information has also been produced about the entity: The two owners have contributed $200,000 each. The entity has always distributed all the profits. Total Liabilities are $200,000. The entity owes $150,000 to trade creditors/accounts payable. The remainder of the entity’s loan financing is via a mortgage loan. The entity made a Net Profit after tax this year of $60,000. The profit figure includes $20,000 of interest expense associated with the loan. Required: In the boxes provided state whether each statement is true or false. Please also show workings to support your answer in the box provided. a. The entity’s current ratio is 2 : 1. b. The entity’s net assets are $400,000. c. The uses more equity financing than debt financing.
SWFT Essntl Tax Individ/Bus Entities 2020
23rd Edition
ISBN:9780357391266
Author:Nellen
Publisher:Nellen
Chapter18: Comparative Forms Of Doing Business
Section: Chapter Questions
Problem 18P
Related questions
Question
An entity has $600,000 of total assets including current assets of $300,000. The following information has also been produced about the entity:
- The two owners have contributed $200,000 each.
- The entity has always distributed all the profits. Total Liabilities are $200,000. The entity owes $150,000 to trade creditors/accounts payable. The remainder of the entity’s loan financing is via a mortgage loan.
- The entity made a Net Profit after tax this year of $60,000.
- The profit figure includes $20,000 of interest expense associated with the loan.
Required:
In the boxes provided state whether each statement is true or false. Please also show workings to support your answer in the box provided.
a. The entity’s
b. The entity’s net assets are $400,000.
c. The uses more equity financing than debt financing.
d. The entity’s Return on Assets is 10%.
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