Question

Current Yr 1 Yr Ago 2 Yrs Agg 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 $ 30,246 91,204 113,559 9,642 273,173 $517,824 $ 36,783 $ 36,091 63,12150,086 82,584 52, 296 9,468 4,133 254,444 229,394 $446,400 $372,000 $128,938 $ 76,196 $ 49,595 100, 271 162,500 126, 115 $517,824 102,672 84,678 162,500 162,500 105,032 75,227 $446,400 $372,000 (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.

Answer 1

Solution:

1.a.) Current ratio for the each of the three years:

Current ratio = Current assets / Current Liabilities

	Current assets	/	Current Liabilities	=	Current Ratio
Current year	$244,651($30,246+91,204+113,559+9,642)	/	$128,938	=	1.897 or 1.90	to 1
1year ago	$191,956 ($36,783 + $63,121 + $82,584 + $9,468)	/	$76,196	=	2.519 or 2.52	to 1
2 years ago	$142,606 ($36,091+$50,086 + $52,296 +$4,133)	/	$49,595	=	2.875 or 2.88	to 1

1.b.)

The current ratio improve over the three year period.

2.a.)

Acid-test ratio = ( Cash + short term investment + current receivables) / Current liabilities

	Cash	+	Short term investment	+	Current receivables	/	Current Liabilities	=	Acid test ratio
Current year	$30,246	+	0	+	$91,204	/	$128,938	=	0.94	to 1
1Year ago	$36,783	+	0	+	$63,121	/	$76,196	=	1.31	to 1
2 Year ago	$36,091	+	0	+	$50,086	/	$49,595	=	1.73	to 1

2.b.)

The acid - test ratio improve over the three year period.