Question

Requirement 1. Compute

PilgrimPilgrim​'s

quick​ (acid-test) ratio at the end of

20192019.

Round to two decimal places. How does the quick ratio compare with the industry average of​ 0.92?

Begin by selecting the​ formula, then enter the amounts and compute the quick​ (acid-test) ratio. ​(Abbreviation used:​ Cash* = Cash and cash equivalents. Round the quick​ (acid-test) ratio to two decimal​ places.)

Cash* + Short-term investments + Net current receivables

/

Total current liabilities

=

Quick (acid-test) ratio

104000

/

104000

=

How does the quick​ (acid-test) ratio compare to the industry average of​ 0.92?

PilgrimPilgrim​'s

position is

favorable

compared to the industry average of 0.92.

Requirement 2. Compare​ days' sales outstanding for

20192019

with the​ company's credit terms of net 30 days.

Begin by selecting the​ formula, then enter the amounts to calculate the​ days' sales outstanding. ​(Round interim calculations to two decimal​ places, XX.XX and the​ days' sales outstanding​ (DSO) up to the next whole​ day.)

/

=

Days' sales outstanding

/

=

days

PilgrimPilgrim​'s

​days' sales outstanding is

▼blank

the credit terms of net 30

Data table:

	2019		2018
Current assets:
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . .		$10,000		$10,000
Short-term investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . .		18,100		14,600
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$83,500		$70,200
Less: Allowance for uncollectibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(7,600)	75,900	(5,600)	64,600
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . .		192,000		194,000
Prepaid insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		2,300		2,300
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		298,300		285,500
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		104,000		110,000
Net sales (all on account). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		843,000		735,000

Answer 1

Answer to Requirement 1:

Quick Ratio = (Cash + Short-term Investments + Net Current Receivables) / Total Current Liabilities
Quick Ratio = ($10,000 + $18,100 + $75,900) / $104,000
Quick Ratio = $104,000 / $104,000
Quick Ratio = 1.00

Pilgrim’s position is favourable compared to the industry average of 0.92.

Answer to Requirement 2:

Average Net Accounts Receivable = ($75,900 + $64,600) / 2
Average Net Accounts Receivable = $70,250

Accounts Receivable Turnover = Net Sales / Average Accounts Receivable (net)
Accounts Receivable Turnover = $843,000 / $70,250
Accounts Receivable Turnover = 12

Days’ Sales Outstanding = 365 / Accounts Receivable Turnover
Days’ Sales Outstanding = 365 / 12
Days’ Sales Outstanding = 31 days

Pilgrim​'s ​days' sales outstanding is worse than the credit terms of net 30.