Question: an entity has 600000 of total assets including current assets...

An entity has $600,000 of total assets including current assets of $300,000. The following information has also been produced about the entity:

 

• The two owners have contributed $200,000 each.
• The entity has always distributed all the profits. Total Liabilities are $200,000. The entity owes $150,000 to trade creditors/accounts payable. The remainder of the entity’s loan financing is via a mortgage loan.
• The entity made a Net Profit after tax this year of $60,000.
• The profit figure includes $20,000 of interest expense associated with the loan.

 

 

Required:

In the boxes provided state whether each statement is true or false. Please also show workings to support your answer in the box provided.

a.    The entity’s current ratio is 2 : 1.   (1 mark)

b.    The entity’s net assets are $400,000.      (1 mark)

c.     The uses more equity financing than debt financing.   (1 mark)

d.    The entity’s Return on Assets is 10%. ( 1marks)