Question

11) Measures of solvency and credit risk Shown below are selected items appearing in a recent balance sheet of Grant Products. (Dollar amounts are in thousands.) Cash and cash equivalents Investments in marketable securities Receivables Inventories Prepaid expense and other current assets Plant and equipment Accounts payable Bank loans payable within one year Income taxes payable Retained earnings $620 $300 $1,400 $1,100 $450 $3,300 $1,600 $300 $300 $1.700 Compute the following: Total Quick Assets Total Current Assets Total Current Liabilities Quick Ratio Current Ratio to 1 to 1 b) Your Industry Research indicates an industry average quick ratio is 1.3 to 1, and a current ratio of 2.3 to 1. Based upon this information, does Grant Products appear more or less solvent than the average company in its industry? Expl

Answer 1

Current assets Cash and cash equivalents Investments in marketable securities Receivables Inventories Prepaid expense and other current assets Amount Current liabilities Amount $ 620 Accounts payable $1,600 $ 300 bank loans payable with in one year $ 300 $ 1,400 Income taxes payable $ 300 $ 1,100 $ 450 Total $ 3,870 Total $2,200 Quick assets Assets which are easly convertible into cash Quick assets Cash and cash equivalents Investments in marketable securities Receivables Total $ $ $ S 620 300 1,400 2,320

Current ratio =Current assets / Current liabilities = $ 3870 / $ 2200 1.76 Quick ratio =Quick assets / Current liabilities = $ 2320 / $ 2200 1.05 Industry average quick ratio is 1.3 to 1, but grant products quick ratio is 1.05 which is better than industry average ratio so it is solvent Industry average Current ratio is 2.3 to 1 , but grant products current ratio is 1.76 which is better than industry average ratio so it is solvent