Question

Lab Task 1 & task 2 (due week 7): Please submit both tasks together on one pdf document. Do not forget to highlight your answers Lab task 1 1) The accountant at Parker & Sisters gathered the following selected accounting information: 20X9 20X8 $ 32,000 17,000 23,000 65,000 8,000 54.000 15,000 $ 40,000 Cash at bank Short-term investments 27,000 35,000 62,000 Accounts receivable (net) Inventory Prepaid expenses Accounts payable Salary payable Income taxes payable Debentures payable (due 20X9) 7,000 61,000 16,000 11,000 80,000 270,000 165,000 9,000 80,000 235,000 141,000 Net credit sales Cost of goods sold a) Calculate the acid-test ratio for 20X8 and 20X9. b) Calculate the days' sales in receivables for 20X8 and 20X9. The accounts receivable (net) at 31 December 20X7, were $39,000. c) Are the ratios improving or deteriorating? Explain?

Answer 1

Ans.	*Calculations for total current assets and current liabilities:
	Assets:	2019	2018
	Cash at bank	$40,000	$32,000
	Short term investments	$27,000	$17,000
	Accounts receivables	$35,000	$23,000
	Inventory	$62,000	$65,000
	Prepaid expenses	$7,000	$8,000
	Total current assets	$171,000	$145,000
	Liabilities:
	Accounts payable	$61,000	$54,000
	Salary payable	$16,000	$15,000
	Income tax payable	$11,000	$9,000
	Debentures payable	$80,000	$80,000
	Total Current liabilities	$168,000	$158,000
Ans. A	Acid test ratio   =   (Total current assets - Inventory - Prepaid expenses) / Total current liabilities
	2019	($171,000 - $62,000 - $7,000) / $168,000		0.61 : 1
	2018	($145,000 - $65,000 - $8,000) / $158,000		0.46 : 1
Ans. B	*Average receivable = (Beginning receivables + Ending receivables) / 2
	2019	($23,000 + $35,000) / 2	$29,000
	2018	($39,000 + $23,000) / 2	$31,000
	Days sales in receivable =   No. of days in year / Net credit sales * Average accounts receivables
	2019	365 / $270,000 * $29,000	39.20	days
	2018	365 / $235,000 * $31,000	48.15	days
Ans. C	Acid test ratio and days sales in receivable both are improving.
	Explanations: Acid test ratio measures the liquidity of the company, so the increase in acid test
	ratio from 2018 to 2019 indicates the better liquidity that's why it is improving.
	Decrease in the days sales in receivable from 2018 to 2019 shows that company is collecting it's
	money in short time in comparision to previous year. So it is good for the business.