TCO D The following items are taken from the financial state

(TCO D) The following items are taken from the financial statements of SRW Company for 2012: Cash $375,000 Accounts Receivable 125,000 Prepaid Insurance 100,000 Accounts Payable 88,000 Unearned Service Revenue 15,000 Equipment, net of accumulated depreciation 177,000 Common Stock 125,000 Retained Earnings 12/31/2011 106,000 Long-term debt 336,500 Service revenue 225,000 Cost of Goods Sold 62,500

Solution

Income statement

Income

Service revenue = 225,000

Cost of goods sold = 62,500

Gross income = 162,500

Expenses

Rent expense = 30,000

Supplies expense = 8,000

Insurance expense = 18,000

Total expense = 56,000

Net income = 106,500

Balance sheet

Liabilities

Net income = 106,500

Retained earning = 106,000

Long term debt = 336,500

Common stock = 125,000

Accounts payable = 88,000

Total liabilities = 762,000

Assets

Cash = 375,000

Accounts receivable = 125,000

Prepaid insurance = 100,000

Unearned service revenue = 15,000

Equipment = 177,000

Total assets = 792,000

Current ratio = Current Assets / Current Liabilities

= (Cash + Accounts receivable + Prepaid insurance + unearned service revenue) / Accounts payable

= 615,000/88,000

= 6.99