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PRIOR COMPANY BALANCE SHEET Dec. 31, 2017 Dec. 31, 2016 52,000 198,000 80,000 440,000 3,000 $ 60,000 80,000 40,000 360,000 7,000 Cash $ Accounts receivable (net) Short-term investments Inventory Prepaid expenses $ 773,000 857,000 $ 547,000 853,000 Total current assets Property, plant, and equipment (net) Total assets $1,630,000 $1,400,000 240,000 400,000 990,000 Current liabilities Bonds payable Common stockholders’ equity 160,000 400,000 840,000 Total liabilities and stockholders' equity $1,630,000 $1,400,000 INCOME STATEMENT FOR THE YEAR ENDED 2017 $1,640,000 (800,000) Sales revenue Cost of goods sold Gross profit Selling and administrative expenses Interest expense 840,000 (440,000) (40,000) Net income $ 360,000

PRIOR COMPANY BALANCE SHEET Dec. 31, 2017 Dec. 31, 2016 52,000 198,000 80,000 440,000 3,000 $ 60,000 80,000 40,000 360,000 7,000 Cash $ Accounts receivable (net) Short-term investments Inventory Prepaid expenses $ 773,000 857,000 $ 547,000 853,000 Total current assets Property, plant, and equipment (net) Total assets $1,630,000 $1,400,000 240,000 400,000 990,000 Current liabilities Bonds payable Common stockholders’ equity 160,000 400,000 840,000 Total liabilities and stockholders' equity $1,630,000 $1,400,000 INCOME STATEMENT FOR THE YEAR ENDED 2017 $1,640,000 (800,000) Sales revenue Cost of goods sold Gross profit Selling and administrative expenses Interest expense 840,000 (440,000) (40,000) Net income $ 360,000

Financial Accounting: The Impact on Decision Makers
Financial Accounting: The Impact on Decision Makers
10th Edition
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Gary A. Porter, Curtis L. Norton
Chapter13: Financial Statement Analysis
Section: Chapter Questions
Problem 13.10E
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(Ratio Computations and Analysis) Prior Company’s condensed financial statements provide the following information.

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Instructions
(a) Determine the following for 2017.
(1) Current ratio at December 31.
(2) Acid-test ratio at December 31.
(3) Accounts receivable turnover.
(4) Inventory turnover.
(5) Return on assets.
(6) Profit margin on sales.
(b) Prepare a brief evaluation of the financial condition of Prior Company and of the adequacy of its profits.

PRIOR COMPANY BALANCE SHEET Dec. 31, 2017 Dec. 31, 2016 52,000 198,000 80,000 440,000 3,000 $ 60,000 80,000 40,000 360,000 7,000 Cash $ Accounts receivable (net) Short-term investments Inventory Prepaid expenses $ 773,000 857,000 $ 547,000 853,000 Total current assets Property, plant, and equipment (net) Total assets $1,630,000 $1,400,000 240,000 400,000 990,000 Current liabilities Bonds payable Common stockholders’ equity 160,000 400,000 840,000 Total liabilities and stockholders' equity $1,630,000 $1,400,000 INCOME STATEMENT FOR THE YEAR ENDED 2017 $1,640,000 (800,000) Sales revenue Cost of goods sold Gross profit Selling and administrative expenses Interest expense 840,000 (440,000) (40,000) Net income $ 360,000
Transcribed Image Text:PRIOR COMPANY BALANCE SHEET Dec. 31, 2017 Dec. 31, 2016 52,000 198,000 80,000 440,000 3,000 $ 60,000 80,000 40,000 360,000 7,000 Cash $ Accounts receivable (net) Short-term investments Inventory Prepaid expenses $ 773,000 857,000 $ 547,000 853,000 Total current assets Property, plant, and equipment (net) Total assets $1,630,000 $1,400,000 240,000 400,000 990,000 Current liabilities Bonds payable Common stockholders’ equity 160,000 400,000 840,000 Total liabilities and stockholders' equity $1,630,000 $1,400,000 INCOME STATEMENT FOR THE YEAR ENDED 2017 $1,640,000 (800,000) Sales revenue Cost of goods sold Gross profit Selling and administrative expenses Interest expense 840,000 (440,000) (40,000) Net income $ 360,000
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