| Account | Current Year | Prior Year |
| Net sales (all credit) | $445,400 | $362,000 |
| Costs of goods sold | $220,000 | $185,000 |
| Gross profit | $225,400 | $177,000 |
| Income from operations | $72,000 | $80,000 |
| Interest expense | $8,000 | $14,000 |
| Net income | $40,000 | $35,000 |
| Cash | $34,000 | $28,000 |
| Accounts receivable, net | $42,000 | $62,000 |
| Inventory | $120,000 | $100,000 |
| Prepaid expenses | $4,000 | $2,000 |
| Total current assets | $200,000 | $192,000 |
| Total long-term assets | $200,000 | $230,000 |
| Total current liabilities | $100,000 | $165,000 |
| Total long-term liabilities | $44,000 | $95,000 |
| Common stock, no par, $8,000 shares, value $120/share | $80,000 | $80,000 |
a. What is the acid-test ratio for the current year and prior year? (show work) What does the acid test tell you about the company?
acid-test ratio = Total
Current Assets - Prepaid Expenses - Inventory
Total Current Liabilities
current year
Total Current Assets = 200000
Prepaid Expenses =4000
Inventory =120000
Total Current Liabilities = 100000
acid-test ratio = 200000 - 4000 -120000 / 100000
= 0.76
prior year
Total Current Assets = 192000
Prepaid Expenses =2000
Inventory =100000
Total Current Liabilities = 165000
acid-test ratio = 192000 - 2000 -100000 / 165000
= 0.54
acid-test ratio tells whether the company has enough short term assets to pay short term liabilities.It means company have liquid assets .On an industry average acid-test ratio of 1:1 is considered good which means that short term assets will totally pay short term liabilities.
Current year acid-test ratio is 0.76 which means company cannot meet the requirement of short term liabilities fully
However comparing Current year acid-test ratio with previous year acid-test ratio, this means that the ratio has been improved
Account Current Year Prior Year Net sales (all credit) $445,400 $362,000 Costs of goods sold $220,000...
Account Current Year Prior Year Net sales (all credit) $445,400 $362,000 Costs of goods sold $220,000 $185,000 Gross profit $225,400 $177,000 Income from operations $72,000 $80,000 Interest expense $8,000 $14,000 Net income $40,000 $35,000 Cash $34,000 $28,000 Accounts receivable, net $42,000 $62,000 Inventory $120,000 $100,000 Prepaid expenses $4,000 $2,000 Total current assets $200,000 $192,000 Total long-term assets $200,000 $230,000 Total current liabilities $100,000 $165,000 Total long-term liabilities $44,000 $95,000 Common stock, no par, $8,000 shares, value $120/share $80,000 $80,000 D....
Account Current Year Prior Year Net sales (all credit) $445,400 $362,000 Costs of goods sold $220,000 $185,000 Gross profit $225,400 $177,000 Income from operations $72,000 $80,000 Interest expense $8,000 $14,000 Net income $40,000 $35,000 Cash $34,000 $28,000 Accounts receivable, net $42,000 $62,000 Inventory $120,000 $100,000 Prepaid expenses $4,000 $2,000 Total current assets $200,000 $192,000 Total long-term assets $200,000 $230,000 Total current liabilities $100,000 $165,000 Total long-term liabilities $44,000 $95,000 Common stock, no par, $8,000 shares, value $120/share $80,000 $80,000 F....
Account Current Year Prior Year Net sales (all credit) $445,400 $362,000 Costs of goods sold $220,000 $185,000 Gross profit $225,400 $177,000 Income from operations $72,000 $80,000 Interest expense $8,000 $14,000 Net income $40,000 $35,000 Cash $34,000 $28,000 Accounts receivable, net $42,000 $62,000 Inventory $120,000 $100,000 Prepaid expenses $4,000 $2,000 Total current assets $200,000 $192,000 Total long-term assets $200,000 $230,000 Total current liabilities $100,000 $165,000 Total long-term liabilities $44,000 $95,000 Common stock, no par, $8,000 shares, value $120/share $80,000 $80,000 G....
Account Current Year Prior Year Net sales (all credit) $445,400 $362,000 Costs of goods sold $220,000 $185,000 Gross profit $225,400 $177,000 Income from operations $72,000 $80,000 Interest expense $8,000 $14,000 Net income $40,000 $35,000 Cash $34,000 $28,000 Accounts receivable, net $42,000 $62,000 Inventory $120,000 $100,000 Prepaid expenses $4,000 $2,000 Total current assets $200,000 $192,000 Total long-term assets $200,000 $230,000 Total current liabilities $100,000 $165,000 Total long-term liabilities $44,000 $95,000 Common stock, no par, $8,000 shares, value $120/share $80,000 $80,000 E....
Account Current Year Prior Year Net sales (all credit) $445,400 $362,000 Costs of goods sold $220,000 $185,000 Gross profit $225,400 $177,000 Income from operations $72,000 $80,000 Interest expense $8,000 $14,000 Net income $40,000 $35,000 Cash $34,000 $28,000 Accounts receivable, net $42,000 $62,000 Inventory $120,000 $100,000 Prepaid expenses $4,000 $2,000 Total current assets $200,000 $192,000 Total long-term assets $200,000 $230,000 Total current liabilities $100,000 $165,000 Total long-term liabilities $44,000 $95,000 Common stock, no par, $8,000 shares, value $120/share $80,000 $80,000 What...
Account Current Year Prior Year Net sales (all credit) $445,400 $362,000 Costs of goods sold $220,000 $185,000 Gross profit $225,400 $177,000 Income from operations $72,000 $80,000 Interest expense $8,000 $14,000 Net income $40,000 $35,000 Cash $34,000 $28,000 Accounts receivable, net $42,000 $62,000 Inventory $120,000 $100,000 Prepaid expenses $4,000 $2,000 Total current assets $200,000 $192,000 Total long-term assets $200,000 $230,000 Total current liabilities $100,000 $165,000 Total long-term liabilities $44,000 $95,000 Common stock, no par, $8,000 shares, value $120/share $80,000 $80,000 E....
Account Current Year Prior Year Net sales (all credit) $445,400 $362,000 Costs of goods sold $220,000 $185,000 Gross profit $225,400 $177,000 Income from operations $72,000 $80,000 Interest expense $8,000 $14,000 Net income $40,000 $35,000 Cash $34,000 $28,000 Accounts receivable, net $42,000 $62,000 Inventory $120,000 $100,000 Prepaid expenses $4,000 $2,000 Total current assets $200,000 $192,000 Total long-term assets $200,000 $230,000 Total current liabilities $100,000 $165,000 Total long-term liabilities $44,000 $95,000 Common stock, no par, $8,000 shares, value $120/share $80,000 $80,000 What...
Account Current Year Prior Year Net sales (all credit) $445,400 $362,000 Costs of goods sold $220,000 $185,000 Gross profit $225,400 $177,000 Income from operations $72,000 $80,000 Interest expense $8,000 $14,000 Net income $40,000 $35,000 Cash $34,000 $28,000 Accounts receivable, net $42,000 $62,000 Inventory $120,000 $100,000 Prepaid expenses $4,000 $2,000 Total current assets $200,000 $192,000 Total long-term assets $200,000 $230,000 Total current liabilities $100,000 $165,000 Total long-term liabilities $44,000 $95,000 Common stock, no par, $8,000 shares, value $120/share $80,000 $80,000 What...
Account Current Year Prior Year Net sales (all credit) $445,400 $362,000 Costs of goods sold $220,000 $185,000 Gross profit $225,400 $177,000 Income from operations $72,000 $80,000 Interest expense $8,000 $14,000 Net income $40,000 $35,000 Cash $34,000 $28,000 Accounts receivable, net $42,000 $62,000 Inventory $120,000 $100,000 Prepaid expenses $4,000 $2,000 Total current assets $200,000 $192,000 Total long-term assets $200,000 $230,000 Total current liabilities $100,000 $165,000 Total long-term liabilities $44,000 $95,000 Common stock, no par, $8,000 shares, value $120/share $80,000 $80,000 C....
Account Current Year Prior Year Net sales (all credit) $445,400 $362,000 Costs of goods sold $220,000 $185,000 Gross profit $225,400 $177,000 Income from operations $72,000 $80,000 Interest expense $8,000 $14,000 Net income $40,000 $35,000 Cash $34,000 $28,000 Accounts receivable, net $42,000 $62,000 Inventory $120,000 $100,000 Prepaid expenses $4,000 $2,000 Total current assets $200,000 $192,000 Total long-term assets $200,000 $230,000 Total current liabilities $100,000 $165,000 Total long-term liabilities $44,000 $95,000 Common stock, no par, $8,000 shares, value $120/share $80,000 $80,000 C....