Question

1. he following data were taken from the balance sheet of Nilo Company at the end of two recent fiscal years:

   				Current Year			Previous Year
   Current assets:
   Cash				$524,400			$436,800
   Marketable securities				607,200			491,400
   Accounts and notes receivable (net)				248,400			163,800
   Inventories				316,800			95,200
   Prepaid expenses				163,200			60,800
   	Total current assets			$1,860,000			$1,248,000
   Current liabilities:
   Accounts and notes payable
   	(short-term)			$348,000			$364,000
   Accrued liabilities				252,000			156,000
   	Total current liabilities			$600,000			$520,000

   a. Determine for each year (1) the working capital, (2) the current ratio, and (3) the quick ratio. Round ratios to one decimal place.

   			Current Year			Previous Year
   1. Working capital	$			$
   2. Current ratio
   3. Quick ratio

   b. The liquidity of Nilo has DECLINED OR IMPROVED? from the preceding year to the current year. The working capital, current ratio, and quick ratio have all INCREASED OR DECREASED? . Most of these changes are the result of an INCREASE OR DECREASE? in current assets relative to current liabilities

Answer 1

Current Year Previous Year Given Data : Particulars Current Assets : Cash Marketable Securities Accounts and Notes Receivables (Net) Inventories Prepaid Expenses Total Current Assets $ 5,24,400 $ 6,07,200 $ 2,48,400 $ 3,16,800 $ 1,63,200 $ 18,60,000 $ 4,36,800 $ 4,91,400 1,63,800 $ 95,200 $ 60,800 $ 12,48,000 Current Liabilities : Accounts and Notes Payable (Short-term) Accrued Liabilities Total Current Liabilities $ $ $ 3,48,000 2,52,000 6,00,000 $ $ $ 3,64,000 1,56,000 5,20,000 (a). Determine for each year (1) the working capital, (2) the current ratio, and (3) the quick ratio. Round ratios to one decimal place. Particulars Current Year Previous Year Working Capital This is calculated as follows: Current Assets - Current Liabilities $ 12,60,000 $ 7,28,000 C. Y = $ 1,860,000 - $ 600,000 P. Y = $ 1,248,000 - $ 520,000 Current Ratio This is calculated as follows: Current Assets / Current Liabilities C. Y = $ 1,860,000 / $ 600,000 P. Y = $ 1,248,000 / $ 520,000 3.10 2.40 Quick Ratio This is calculated as follows: (Current Assets - Inventories - Prepaid Expenses) / Current Liabilities C. Y = $ 1,380,000 / $ 600,000 P. Y = $ 1,092,000 / $ 520,000 2.30 2.10

(b). The liquidity of Nilo has DECLINED OR IMPROVED ? Nilo Company's Liquidity has improved. The Current Ratio and Quick Ratio has increased over the previous year. The Quick ratio which gives more information about the liquidity of the business has been increased over the last year. Higher the Ratio - Better the Liquidity. So, the Nilo Company's liquidity is increased.