Question

Edward Allen Interiors Inc. is a leading manufacturer and retailer of home furnishings in the United States and abroad. The following is adapted from Edward Allen’s September 30, 2016, trial balance. (The amounts shown represent millions of dollars.)

Accounts Payable	$	147
Accounts Receivable		33
Cash		146
Common Stock		36
Equipment		390
Inventory		182
Notes Payable (long-term)		250
Notes Payable (short-term)		2
Prepaid Rent		38
Retained Earnings		401
Salaries and Wages Payable		43
Software		90

Assume that the following events occurred in the following quarter.

1. Paid $50 cash for additional inventory.
2. Issued additional shares of common stock for $30 in cash.
3. Purchased equipment for $240; paid $115 in cash and signed a note to pay the remaining $125 in two years.
4. Signed a short-term note to borrow $12 cash.
5. Conducted negotiations to purchase a sawmill, which is expected to cost $44.

Required: 1-a. Calculate Edward Allen's current ratio at September 30, 2016, prior to the transactions listed above. (Round your answer to 2 decimal places.) Current Ratio 1-b. Based on the above calculation and analysis of TripAdvisor's current ratio 4.73, indicate which company is in a better position to pay liabilities. O Edward Allen TripAdvisor

(NEED 1,2,3,4,5)

Answer 1

Solution:   1 a

Current Ratio = Current assests / Current Liabillities

here Current assets = CASH + INVENTORY+ PREPAID RENT + ACCOUNT RECIEVABLE

CURRENT LIABILITIES = ACCOUNTS PAYBLE + NOTES PAYBLE +OUTSTANDING SALARY AND WAGES

HERE CASH BALANCE HAS CHANGED SO

CASH = 146 BALANCE - 50 (ADDITIONAL INVENTARY) + 30 (ISSUE OF SHARE FOR COMMON STOCK) - 115 (PAID FOR EUIPMENT) + 12 (SHORT TERM NOTE BORROW)

CASH = 146+30+12-50-115 = $23

INVENTORY= 182 +50 ADD = $ 234

NOTES PAYBLE SHORT TERM = 2 +12 = $14

CURRENT ASSETS = CASH 23 + INVRNTORY 232 +PREPAID RENT 38 + ACCOUNT REC 33

= $ 326

CURRENT LIABILITIES = A/C PAYBLE 147 + NOTES PAYBLE 14 + OUTSTANDING SALARY AND WAGES 43

= $204

HENCE CURRENT RATIO = CURRENT ASSETS / CURRENT LIABILITIES

= 326/204

= 1.59 %

SOLUTION 1 -b

THE IDEAL CURRENT RATIO IS 2 : 1 OR 2 % . THE HIGHER PERCENTAGE OF CURRENT RATIO SHOWS STUCK OF PAYMENT AND STOCK IN THE BUSINESS. EDWARD ALLEN IS IN BETTER POSITION THAN TRIP advisor.