show below is a selected information from the financial statement of Rentsch, Inc., a retail …

from the balance sheet cash…………………………………………………………………………….. $30,000 accounts
receivable……………………………………………………..150,000 inventory
……………………………………………………………………….200,000 plant assets(net of accumulated depreciation)…………….. 500,000
current liabilities…………………………………………………………….150,000 total stockholder’s
equity………………………………………………..300,000 total
assets……………………………………………………………………..1,000,000 from the income statement: net
sales………………………………………………………………………….$1,500,000 costs of goods
sold………………………………………………………….1,080,000 operating
expenses…………………………………………………………. 315,000 interest
expenses…………………………………………………………….. 84,000 income tax
expenses………………………………………………………….6,000 net
income………………………………………………………………………….15,000 From the statement of cash flows: net cash provided by operating
activities (including interest paid of $79,000)……………………………………….$40,000 net cash used in investing
activities……………………………………..(46,000) Financing activities: Amounts borrowed…………………………………………….$50,000
Repayment of amounts borrowed………………………(14,000) Dividends paid…………………………………………………..(20,000) Net cash
provided by financing activities………………………….16,000 Net increase in cash during the year…………………………………….$10,000
Instructions: 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. b)Compute the following (round to one decimal place): 1. current ratio 2. Quick ratio 3. Working capital 4. Debt ratio c) comment on these
measurements and evaluate Rentsch, Inc.’s short-term debt-paying ability. d)Computed the following ratios (assume that the year-end amounts of total assets and
total stockholders’ equity also represent the average amounts throughout the year): 1. return on assets 2. return on equity. e) comment on the company’s
performance under these measurements. explain why the return on assets and return on equity are so different. f) Discuss (1) the apparent safety of long-term
creditor’s claims and (2) the prospect for Rentsch, Inc., continuing payments at the present level.


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