Asking for Acid-Test Ratio, and Margin ratio Required information The following

Question

Asking for Acid-Test Ratio, and Margin ratio Required information The following information applies to the questions displayed below.] The following unadjusted trial balance is prepared at fiscal year-end for Nelson Company. NELSON COMPANY Unadjusted Trial Balance January 31, 2017 Debit Credit 15,800 13,000 5,300 2,300 43,000 Cash Merchandise inventory Store supplies Prepaid insurance Store equipment Accumulated depreciation-Store equipment Accounts payable Common stock Retained earnings Dividends Sales Sales discounts Sales returns and allowances 18,200 16,000 3,800 19,000 2,150 114,700 1,950 2,300 38,000 Cost of goods sold Depreciation expense-Store equipment 26,300 12,000 9,600 Salaries expense Insurance expense Rent expense Store supplies expense Advertising expense Totals $171,700 $171,700 Rent expense and salaries expense are equally divided between selling activities and general and administrative arthities Nelenn Comna

Explanation / Answer

a) Current ratio = Current assets/Current liabilities

= (15800+10100+2450+800)/18200

Current ratio = 1.60 : 1

b) Acid test ratio = Cash/Current liabilities

= 15800/18200

Acid test ratio = 0.87:1

c) Gross margin ratio = 15750*100/110450 = 14.26%

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