The Financial Statements of Midwest Tours Are Given Below

question 31

Multiple Choice

The financial statements of Midwest Tours are given below. $\begin{array}{c} \text { Midwest Tours } \\\text { Income Statement (2009) }\\\begin{array}{lrr} \hline \text { Sales } & \$ 2,500,000 \\\text { Cost of goods sold } & \underline {1,260,000} \\\text { Gross profit } & 1,240,000 \\\text { Selling \& administrative expenses } & \underline { 700,000} \\\text { Operating profit } & 540,000 \\\text { Interest expense } & \underline {160,000 }\\\text { Income before tax } & 380,000 \\\text { Tax expense } & \underline {152,000} \\ \text { Net income } & \underline {\$ 228,000} \\\end{array} \end{array}$ $\begin{array}{c}\begin{array}{lll} \text { Balance Sheet } &2009\\\\ \text { Cash } &\$ 60,000 \\ \text { Accounts receivable } & 500,000 \\ \text { Inventory } & \underline {300,000} \\ \text {Total current assets } &\$ 860,000 \\ \text {Fixed assets } & \underline {2,180,000} \\ \text { Total assets } & \underline {\$ 3,040,000} \\\\ \text { Accounts Payable } &\$ 200,000 \\ \text { Bank loan } & \underline {460,000} \\ \text { Total current liabilities } & \$ 660,000 \\ \text {Bond payable } & \underline { 860,000} \\ \text { Total liabilities } & \underline {\$ 1,520,000 }\\ \text { Common stock ( 130,000 shares) } & \$ 120,000 \\ \text {Retained earnings } & \underline {1,400,000}\\ \text { Total liabilities \& equity } & \underline {\$ 3,040,000} \\\end{array}\begin{array}{lll}2008\\\\\$ 50,000 \\450,000 \\ \underline { 270,000 }\\ \$ 770,000 \\ \underline { 2,000,000} \\ \underline { \$ 2,770,000 }\\\\\$ 170,000 \\ \underline { 440,000} \\ \$ 610,000 \\ \underline {860,000} \\ \underline {\$ 1,470,000 }\\\$ 120,000\\ \underline {1,300,000} \\ \underline { \$ 2,890,000 } \\\end{array}\end{array}$ Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's current ratio for 2009 is

• A) 1.82.
• B) 1.03.
• C) 1.30.
• D) 1.65.
• E) None of the options are correct.

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Definitions:

Shareholders

Individuals or entities that own shares in a corporation, giving them a claim on part of the company's assets and earnings.

Regular Dividends

Payments made by a corporation to its shareholders, usually as a distribution of profits on a fixed schedule.

Hedge Funds

Investment funds that employ various strategies to earn active returns for their investors, including leveraging, derivatives, and short selling.

Private Investment Companies

Firms that invest pooled funds from investors in a variety of assets, not publicly traded and often focusing on wealth management.