Question

Question 21

Use the information that follows taken from Tyler Company’s financial statements for the years ending December 31, 2017 and 2016.

Balance Sheet Information	2017	2016
Assets
Cash	$ 90	$ 50
Accounts receivable	60	80
Inventory	40	80
Land, building, and equipment	230	270
Total Assets	$420	$480
Liabilities and Shareholders' Equity
Accounts payable	$   5	$ 85
Common stock	260	260
Retained earnings	155	135
Total Liabilities & Shareholders' Equity	$420	$480
Income Statement Information
Sale revenue	$850
Cost of goods sold	600
Gross profit	$250
Operating expenses	230
Net income	$ 20

The industry in which Tyler operates has an average current ratio of 2.1 on December 31, 2017. Comment on Tyler’s solvency compared to the industry average as measured by its current ratio.

Answer 1

Current Ratio = Current Assets/ Current Liabilities For the Year 2017: Current Assets: Cash Accounts Receivable Inventory Total Current Assets A 90.00 60.00 40.00 190.00 Total Current Liabilities 5.00 Current Ratio = $190/$5 = 38 Company's Current Ratio is 38 Which is more than the industrial average (2.1). So, Tyler Company is more solvent than industry average.