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Chapter_14

# Chapter_14 - Student Name Class Problem 14-06 a Explain how...

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Student Name: Class: Problem 14-06 a. Explain how the interest expense shown in the income statement could be \$84,000 when the interest payment appearing in the statement of cash flows is only \$79,000. RENTSCH, INC. Ratios b. (1) Current ratio: Current assets: Cash \$30,000 Accounts receivable 150,000 Inventory 200,000 Total current assets \$380,000 Current liabilities \$150,000 Current ratio 2.5 to 1 ^ Correct! (2) Quick ratio: Quick assets: Cash \$30,000 Accounts receivable 150,000 Total quick assets \$180,000 Current liabilities \$150,000 Quick ratio 1.2 to 1 ^ Correct! (3) Working capital: Current assets \$380,000 Less: Current liabilities 150,000 Working capital \$230,000 ^ Correct! (4) Debt ratio: Total liabilities: Total assets \$1,000,000 Less: Total stockholders' equity 300,000 Total liabilities \$700,000 Total assets \$1,000,000 Debt ratio 70% ^ Correct! \$84000 of interest expenses were generated in the statement period. However, only \$79000 were paid in cash. \$5000 is carried on the balance sheet as interest payable.

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Student Name: Class: Problem 14-06 c. Comment on these measurements and evaluate Rentsch, Inc.'s short-term debt-paying ability. RENTSCH, INC. Ratios d.(1) Return on assets: Operating income: Net sales \$1,500,000 Less: Cost of goods sold 1,080,000 Operating expenses 315,000 Operating income \$105,000
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