Question

Simon Company's year-end balance sheets follow. Current Yr 1 Yr Ago 2 Yrs Ago At December 31 Assets Cash Accounts receivable, net Merchandise inventory Prepaid expenses Plant assets, net Total assets Liabilities and Equity Accounts payable Long-term notes payable secured by mortgages on plant assets Common stock, $10 par value Retained earnings Total liabilities and equity $ 32,734 96,790 122,900 10,541 297,454 $560,419 $ 39,036 $ 39,857 68,313 52,612 88,483 57, 169 10,247 4,517 277,041 248,445 $483,120 $402,600 $142,335 $ 82,464 $ 54,206 107, 466 162,500 148,118 $560,419 113,340 89,864 162,500 162,500 124,816 96,030 $483,120 $402,600 (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. Choose Numerator: Current assets Current Ratio Choose Denominator: Current liabilities - Current Ratio Current ratio Current Yr: 1 Yr Ago: 2 Yrs Ago: Required 1B >

Answer 1

Solution

On the basis of the information provided, the calculations are drawn as follows,

Solution For the sake of thë. Calculation, we are drawing the initial Calculahom as follows Cument yr ($)_ 17 ago (4) 2yos. Ago () 82,734 39,036 89,867 Accounts Receivable 96.790 68,313 Prepaid fxpenses 10,541 10,247 LiguID ASSETS, 140,065 117,696. Add: Merchandise Inwenlony _122.900 88,483 57,169 CURRENT ASSETS 262,265 206.019 154,165 52.612 4,517 96.986 Accounts Payable _ 142,335 CURRENT LIABILITIES 142,825 82,464 82,464 54,206 34,206 tla) Current Racis Current year 1 yr. Ago 2 yos. Ago Current Apuelo / Current l'abilies 262,965 142,335 206,019 82,464 154,166L64, 206 Current Ralis 1.85:1 2.50:1 .841. 2 (16) Generally ava bez Dormal atandarde, Couren! Batis for an entil must be Greate than or equallo 2:1. If we look into the curent Ralio of Simon Company one can see that the Cement Ratio in Current year is 1:85:1, adicle is. que unfavourable for lle company's Liguidily position..beside, If we focuses the breedeno years also the ceincent Ralio cuero 1:50:18 19% 230, Qud 2:84:12yogo. That signifies Halolle liquidily boribon, 01 Vie curent- valio her been WORSEN OVER I Huree gear period fics Acid Test Ratio Liquid Acoelo 140,065 117,5961 96,986 current liabilities 142.325 Cument year- 1 yo. Ago. 2 yrs. Ago 82.464 64,206 Acid-Teot Ratio 0.98.1 1.48:1 1.79:1 1 (Page - 1)

Acid-test ratio in another mer best ratio in anothea meenure of liquidity of an entily Nermally, ou Standard acid teot 3tlo Ahall be 1:1 or higher In Yle given denandok Simon Company, Acid Teet Ralin for llei Cured year won. 8.98:1, which te quile beloof than the standard, indicating ah anfowerable liquidly pecahan Bevide, on a quick views of llei previowo years, it wier 1.48:1 Syriage.aud -- 1.79:2yam.ago. That meam Sigotificand seduch'en bas been taken over in Ilie Heree years. Therefore Acid. Text Reti has been WORSEN OVERILO last three years. (Page:2).