Simon Company\'s year-end balance sheets follow. At December 3 Assets Cash Accou

Question

Simon Company's year-end balance sheets follow. At December 3 Assets Cash Accounts receivable, net Merchandise inventory Prepaid expenses Plant assets, net 2013 $ 30,048 $ 36,542 $ 36,960 89,72663,94849,777 107,283 82,862 55,155 9,406 277,301250,712 231,184 10,067 4,024 Total assets $514,425 $443,470 $ 377,100 Liabilities and Equity Accounts payable Long-term notes payable secured by $128,092 $ 73,448 $ 50,773 mortgages on plant assets Common stock, $10 par valuee Retained earnings 98,646100,978 82,506 162,500 162,500162,500 125,187 106,544 81,321 Total liabilities and equity $514,425 $443,470 $377,100 (1) Compute the current ratio for the year ended 2015, 2014, and 2013. Current Ratio Choose Numerator: Choose Denominator: - Current Ratio Current ratio 2015: 2014: 2013: to 1

Explanation / Answer

1. Computation of Current ratio:

**Current ratio = Current assets ÷ Current liabilities

Current assets = Cash + Accounts receivable, net + Merchandise inventory + Prepaid expenses

Current liabilities = Accounts payable

$237,124

2. Computation of Acid test ratio or Quick ratio:

***Acid test ratio = Quick assets or Highly liquid assets ÷ Current liabilities

Quick assets or Numerator = Cash + Accounts receivable

Current liabilities or Denominator = Accounts payable

Note: Inventory and prepaid expenses shall not considered as quick assets as it is difficult to convert them into cash.

Current assets (Numerator) Current liabilities (Denominator) Current ratio 2015

$237,124

$128,092 1.85:1 2014 $192,758 $73,448 2.62:1 2013 $145,916 $50,773 2.87:1

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