FINAL EXAM: ACC/400
S. Duhn

The condensed financial statements of Westward Corporation for 2006 are presented below.

Westward Corporation Westward Corporation Balance Sheet Income Statement December 31, 2006 For the Year Ended December 31, 2006

Assets Revenues $2,000,000
Current assets Expenses Cash and temporary Cost of goods sold 1,080,000 investments $ 30,000 Selling and administrative Accounts receivable 70,000 expenses 495,000 Inventories 120,000 Interest expense 30,000 Total current assets 220,000 Total expenses 1,605,000
Property, plant, and Income before income taxes 395,000 equipment (net) 780,000 Income tax expense 140,000 Total assets $1,000,000 Net income $ 255,000

Liabilities and Stockholders' Equity
Current liabilities $ 80,000
Long-term liabilities 300,000
Common stockholders' equity 620,000 Total liabilities and stockholders' equity $1,000,000

Westward Corporation Westward Corporation Balance Sheet Income Statement December 31, 2005 For the Year Ended December 31, 2005

Assets Revenues $2,500,000
Current assets Expenses Cash and temporary Cost of goods sold 1,750,000 investments $ 40,000 Selling and administrative Accounts receivable 90,000 expenses 500,000 Inventories 150,000 Interest expense 30,000 Total current assets 280,000 Total expenses 2,280,000
Property, plant, and Income before income taxes 220,000 equipment (net) 800,000 Income tax expense 77,000 Total assets $1,080,000 Net income $ 143,000

Liabilities and Stockholders' Equity
Current liabilities $ 140,000
Long-term liabilities 320,000
Common stockholders' equity 620,000 Total liabilities and stockholders' equity $1,080,000

Additional data as of December 31, 2004: Inventory = $100,000; Total assets = $900,000; Common stockholders' equity = $540,000.

Instructions
1. Compute the following listed ratios for 2006 and 2005 showing supporting calculations.

(a) Current ratio= Current assets/ Current liabilities
Current ratio = 220,000/80,000
Current ratio = 2.75

(b) Debt to total assets = Total liabilities/Average Total Assets
Total liabilities = Current liabilities + Long term liabilities
Total liabilities = 80,000 + 320,000
Total liabilities = 400,000

Average total assets = (Opening assets + Closing assets)/2
Average total assets = (1,000,000 + 900,000)/2
Average total assets = 1,900,000/2 = 950,000

Debt to total assets = 400,000/950,000
Debt to total assets = 0.4

(c) Times interest earned = Revenues $2,000,000 - Cost of goods sold $1,080,000
Gross Profit $920,000 - Selling & Administration Expenses $495,000
EBIT $425,000

Times interest earned = 425,000/30,000
Times interest earned = 14.16

(d)