Question

work Assignment i VER [The following information applies to the questions displayed below.) Edward Allen Interiors Inc. is a leading manufacturer and retailer of home furnishings in the United States and abroad. The following is adapted from Edward Allen's September 30, 2016, trial balance. (The amounts shown represent millions of dollars.) Accounts Payable Accounts Receivable Cash Common Stock Equipment Inventory Notes Payable (long-term) Notes Payable (short-term) Prepaid Rent Retained Earnings Salaries and Wages Payable Software $ 128 17 114 29 310 150 170 1 31 337 27 70 Assume that the following events occurred in the following quarter. a. Pald $50 cash for additional Inventory. b. Issued additional shares of common stock for $40 in cash c. Purchased equipment for $160; paid $75 in cash and signed a note to pay the remaining $85 in two years. d. Signed a short-term note to borrow $14 cash e Conducted negotiations to purchase a sawmill, which is expected to cost $36.

1-a Calculate Edward Allen current ratio at September 30,2016 prior to the transcations listed above round your answer to 2 decimal places

1-b Based on the above calculation and analysis of TripAdvisors current ratio 4.73 indicate which company is in a better position to pay liabilities

Edward Allen

Trip Advisor

Answer 1

1a)Current ratio prior to the above transactions will be calculated using formula

Current Ratio = Current Assets / Current Liabilities
= (Accounts Receivable + Cash + Inventory + Prepaid Rent) / (Accounts Payable + Notes Payable Short term + Salaries and Wages Payable)
= (17 + 114 + 150 + 31) / (128 + 1 + 27)
= 312 / 156
= 2.0

1b)On comparison with TripAdvisor with current ratio 4.73, we find that TripAdvisor has comparatively better ratio. TripAdvisor is in a better position to pay liabilities.