imon Company’s year-end balance sheets follow. 1. Compute the current ratio for

Question

imon Company’s year-end balance sheets follow.

1. Compute the current ratio for the year ended 2017, 2016, and 2015.
2. Compute the acid-test ratio for the year ended 2017, 2016, and 2015.

At December 31 2017 2016 2015 Assets Cash $ 31,800 $ 35,625 $ 37,800 Accounts receivable, net 89,500 62,500 50,200 Merchandise inventory 112,500 82,500 54,000 Prepaid expenses 10,700 9,375 5,000 Plant assets, net 278,500 255,000 230,500 Total assets $ 523,000 $ 445,000 $ 377,500 Liabilities and Equity Accounts payable $ 129,900 $ 75,250 $ 51,250 Long-term notes payable secured by
mortgages on plant assets 98,500 101,500 83,500 Common stock, $10 par value 163,500 163,500 163,500 Retained earnings 131,100 104,750 79,250 Total liabilities and equity $ 523,000 $ 445,000 $ 377,500

Explanation / Answer

1 Current ratio=Current asset/Current liabilities 2017 2016 2015 Current assets 244500 190000 147000 Current liabilities 129900 75250 51250 Current ratio 1.88 2.52 2.87 2 Acid-test ratio=(Current assets-Inventories)/Current liabilities 2017 2016 2015 Current assets 244500 190000 147000 Less: inventories 112500 82500 54000 132000 107500 93000 Current liabilities 129900 75250 51250 Acid-test ratio 1.02 1.43 1.81 Note: 1- Current assets 2017 2016 2015 Cash 31800 35625 37800 Accounts receivable,Net 89500 62500 50200 Merchandise inventory 112500 82500 54000 Prepaid expenses 10700 9375 5000 Total current assets 244500 190000 147000 Note:2- current Liabilities 2017 2016 2015 Accounts payable 129900 75250 51250 Total current liabilities 129900 75250 51250

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