Question

Hes Q1. Hill Roy Corporation, has asked the accounts department to determine whether the company's ability to pay its current liabilities and long-term debts improved or deteriorated during current year. To answer this question, compute the following ratios for current year and preceding year. a. Current ratio b. Quick (acid-test) ratio c. Debt ratio d. Times-interest-earned ratio e. Prepare a small report based on your analysis of the following financial statement data in a written report format. Current Year Preceding Year Balance Sheet: Cash Short-term investments Net receivables Inventory Prepaid expenses Total current assets Total current liabilities $ 17,000 11,000 64.000 77.000 16,000 $185.000 $111.000 $ 22,000 26,000 73.000 71,000 8,000 $200,000 $.91.000 Income Statement: Net credit sales Cost of goods sold $654,000 327,000

Answer 1

Current ratio Cum send asset Carrent Irabilthy 185 000 1.6667% Current year 111 000 Preceding year a 200000 91000 2.198 % b) Qurde ratio (acid test ratio) Quick asset Current Crabilities Currat asset-inventry- Prop adapine Current Lrabiny For carent fear (185000 - 77000-16000) 11OOD 0.8288 Tror preceding or (209000 - 1000 - 8000) ooo .3297 ta

c) Debt rating a Total asset Total crability here, Current Asset & liability Total asset & Liability are same as current rattol Forum So, 1.6667 curent year a - preceding geer Times-intrest -earned ratio 21198 % 옥 9 - EBIT intrest expense EBITE 654000- 327000 = 327000 intrest expense not given. The anancial statement shows that the balance of cash io meren decreased &$5000 than previou yer and investment arorth $15000 ware sold. The debtoo Dr $ 9000 were repayeed the amount that due. Stolle od worth the airrat $ Good add rhmely purchased, + year less than that of preceding year. corrent (rability of current year and to than Agar when compared to proviso year adverse to company. company posho is don, company earns EBIT OF $370000 asut & current more an