Question

12. 10,00 points E2-14 Calculating and Evaluating the Current Ratio [LO 2-1, LO 2-5] Cumberland Sports Company reported the following in recent balance sheets (amounts in thousands). September 30, 2013 December 31, 2012 Assets Current Assets Cash Short-Term Investments S 278,200 29.400 386,000 412,100 89,300 294,800 45,100 342,300 364,500 90,700 Prepaid Rent Total Current Assets 1,195,000 73,800 288.700 1.137,400 76,200 260,900 Equipment Total Assets $1,557,500 S1,474,500 Liabilities and Stockholders' Equity Current Liabilitie Accounts Payable Notes Payable (short-term) Income Taxes Payable S 262,200 9.700 271,900 247,800 400 4,900 Total Current Liabilities Notes Payable (long-term) 253,100 42,600 45,800 Total Liabilities 317,700 295,700 Stockholders' Equity Common Stock Retained Earnings 46.400 26,800 1,193,400 1,239,800 $1,557,500 1.152,000 1.178,800 S1,474,500 Total Shareholders' Equity Total Liabilities and Shareholders' Equity Required 1. Calculate the current ratio at September 30, 2013 and December 31, 2012. (Enter your answers in thousands.) Current Ratio September 30, 2013 December 31, 2012 Denominator

Answer 1

1

Current ratio = Total current assets / Total current liabilities

Current ratio at September 30, 2013 = $1,195,000/$271,900 = 4.39

Current ratio at December 31, 2012 = $1137400/2531000 = 4.49

2

Company’s current ratio has decreased which implies that the ability of the company to pay its current liabilities has reduced.

3

Revised current ratio = ($1195000-$10400)/($271900-$10400) = 4.53

Paying down the accounts payable has increased the current ratio

4

Total liabilities = $317,700

Total stockholders’ equity = $1,239,800

Hence, the total assets are primarily financing by stockholders’ equity.