Question

Simon Company's year-end balance sheets follow. 1 Yr Ago At December 31 Current Yr 2 Yrs Ago Assets 43,294 $ 78,060 101,128 11,824 312,332 Cash $ 36,664 109,515 139,e58 12,409 336,454 45,540 60,720 65,320 5,011 Accounts receivable, net Merchandise inventory Prepaid expenses Plant assets, net 270,e09 546,638 446,600 634,100 Total assets Liabilities and Equity Accounts payable Long-term notes payable secured by mortgages on plant assets Common stock, $1e par value Retained earnings $ 157,891 $ 93,306 58,951 119,211 162,50e 194,498 $ 634,1ee 121,955 162,5ee 168,877 546,638 $ 446,600 101,660 162,50e 123,489 Total liabilities and equity (1-a) Compute the current ratio for each of the three years. (1-b) Did the current ratio Improve or worsen over the three year period? (2-a) Compute the acid-test ratio for each of the three years. (2-b) Did the acid-test ratio improve or worsen over the three year period? Complete this question by entering your answers in the tabs below. Required 1A Required 1B Required 2A Required 2B Compute the current ratio for each of the three years. Current Ratio Choose Denominator: Choose Numerator: Current Ratio Current ratio to 1 Current Yr: to 1 1 Yr Ago: 2 Yrs Ago: to 1 Required 1B Required 1A

Answer 1

(I) Computation of current year for three years

Particulars	Current year	1 Year Ago	2 Year Ago
Cash	$        36,664	$    43,294	$    45,540
Accounts receivable, net	$      109,515	$    78,060	$    60,720
Merchandise inventory	$      139,058	$ 101,128	$    65,320
Prepaid expenses	$        12,409	$    11,824	$      5,011
Total current assets	$      297,646	$ 234,306	$ 176,591
Accounts payable	$      157,891	$    93,306	$    58,951
Total current liabilities	$      157,891	$    93,306	$    58,951
Current ratio	1.89	2.51	3.00

(II) Current ratio over the three years has worsen from 3 to 1.89.

(III) Computation of acid test ratio

Particulars	Current year	1 Year Ago	2 Year Ago
Cash	$        36,664	$    43,294	$    45,540
Accounts receivable, net	$      109,515	$    78,060	$    60,720
Total liquid assets	$      146,179	$ 121,354	$ 106,260
Accounts payable	$      157,891	$    93,306	$    58,951
Total current liabilities	$      157,891	$    93,306	$    58,951
Acid test ratio	0.93	1.30	1.80

(IV) Acid test ratio has over the three years has worsen from 1.80 to 0.93.

Overall Company liquid assets has decreased over the year and accounts payable is in increasing trend.