The Copper Grill has the following current assets: cash, $13 million; receivables, $60 million; inventory, $44...
The Copper Grill has the following current assets: cash, $13
million; receivables, $60 million; inventory, $44 million; and
other current assets $4 million. The Copper Grill has the following
liabilities: accounts payable, $35 million; current portion of
long-term debt, $6 million; and long-term debt, $13 million.
Based on these amounts, calculate the current ratio and the
acid-test ratio for The Copper Grill. (Round your answers
to 2 decimal places.)
2
Panama Shirt Designs is a defendant in litigation involving an
employee accident in its manufacturing plant.
Record the appropriate journal entry for each of the following
scenarios. (If no entry is required for a particular
transaction/event, select "No Journal Entry Required" in the first
account field.)
| 1. | The likelihood of a loss occurring is probable and the estimated loss is $700,000. | |
| 2. | The likelihood of a loss occurring is probable and the loss is estimated to be in the range of $450,000 to $800,000. | |
| 3. | The likelihood of a loss occurring is reasonably possible and the estimated loss is $700,000. | |
| 4. | The likelihood of a loss occurring is remote, while the estimated potential loss is $700,000. |
Homework Answers
Part - I:
1.
Computation of current ratio is:
Current ratio = Current assets / Current liabilities
= $121 / $41
= 2.95
Hence, the current ratio is 2.95
Working Notes:
a.
Computation of current assets is:
Current assets = Cash + Receivables + Inventory + Other current assets
= $13 + $60 + $44 + $4
= $121
Hence, the current assets is $121.
b.
Computation of current liabilities is:
Current liabilities = Accounts payable + Current long-term debt
= $35 + $6
= $41
Hence, the current liabilities is $41.
2.
Computation of acid-test ratio is:
Acid-test ratio = Quick assets / Current liabilities
= $73 / $41
= 1.78
Hence, the acid-test ratio is 1.73
Working Notes:
a.
Computation of quick assets is:
Quick assets = Cash + Receivables
= $13 + $60
= $73
Hence, the current assets is $73.
b.
Computation of current liabilities is:
Current liabilities = Accounts payable + Current long-term debt
= $35 + $6
= $41
Hence, the current liabilities is $41.
Part - II:
I
To record entry for contingency loss is:
2.
To record entry for contingency loss is:
3.
No Journal entry will be passed when the loss occurring in the company is not probable in nature but higher chances of possibility. This type of loss becomes contingency for the company. So, the disclosure related to contingency losses shown in the footnote of financial statements of the company.
4.
No Journal entry will be passed when the loss occurring in the company is neither probable in nature nor higher chances of possibility but occur remote for the company. So, the disclosure related to contingency losses in case of remote does not shown in the footnote of financial statements of the company.
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