Question

# Financial statement data of Shawsworth Engineering include the following items:$\begin{matrix} \text{Cash ........................................ } & \text{\ 23,000 } & \text{Accounts payable...................... } & \text{\107,000 }\\ \text{Short-term investments..............} & \text{36,000 } & \text{Accrued liabilities......................} & \text{35,000}\\ \text{Accounts receivable, net............ } & \text{87,000 } & \text{Long-term notes payable........... } & \text{163,000}\\ \text{Inventories................................ } & \text{141,000 } & \text{Other long-term liabilities......... } & \text{33,000 }\\ \text{Prepaid expenses.......................} & \text{4,000 } & \text{Net income................................ } & \text{95,000}\\ \text{Total assets............................... } & \text{675,000 } & \text{Number of common shares outstanding...........} & \text{51,000}\\ \text{Short-term notes payable...........} & \text{42,000}\\ \end{matrix}$Compute Shawsworth’s current ratio, debt ratio, and earnings per share. (Round all ratios to two decimal places.) Compute the three ratios after evaluating the effect of each transaction that follows. Consider each transaction separately. a. Borrowed $120,000 on a long-term note payable b. Issued 15,000 shares of common stock, receiving cash of$364,000 c. Paid short-term notes payable, $24,000 d. Purchased merchandise of$46,000 on account, debiting Inventory e. Received cash on account, \$15,000

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\begin{aligned} \text{Current ratio}&= \dfrac{\text{Current assets}}{\text{Current liabilities}} \\ &= \dfrac{\text{Cash +Short-term investments+ Accounts receivable, net+ Inventories+ Prepaid expenses}}{\text{Short-term notes payable+ Accounts payable+ Accrued liabilities}} \\ &= \dfrac{23,000+36,000+87,000+141,000+4,000}{42,000+107,000+35,000} \\ &=\dfrac{\text{\291,000}}{\text{\184,000}} \\ &=1.60\ times \end{aligned}

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