Exercise 17-7 Liquidity analysis LO P3 Simon Company\'s year-end balance sheets

Question

Exercise 17-7 Liquidity analysis LO P3 Simon Company's year-end balance sheets follow 2017 2016 At December 31 Assets Cash Accounts receivable, net Merchandise inventory Prepaid expenses Plant assets, net Total assets $ 28,063 33,466 $ 35,914 46,490 50,513 3,797 ,486 $ 480,457 $ 414,187 352,200 82,980 102,265 9,220 57,986 74,326 8,524 257,929239,885 215 Liabilities and Equity Accounts payable Long-term notes payablesecured by $ 118,437 $ 71,398 46,025 mortgages on plant assets Common stock, $10 par value Retained earnings 87,616 162,500 162,500 111,904 97,168 78,615 162,500 65,060 352,200 83,121 Total liabilities and equity $ 480,457 $ 414,187 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

Explanation / Answer

SOLUTION

(A) Current Ratio = Current assets / Current Liabilities

= (Cash + Accounts receivable + Inventory + Prepaid Expense) / Accounts payable

2017-

Current ratio = ($28,063 + $82,980 + $102,265 + $9,220) / $118,437

= $222,528 / $118,437 = 1.88

2016-

Current ratio = ($33,466 + $57,986 + $74,326 + $8,524) / $71,398

= $174,302 / $71,398 = 2.44

2015-

Current ratio = ($35,914 + $46,490 + $50,513 + $3,797) / $46,025

= $136,714 / $46,025 = 2.97

(B) Acid - test Ratio = Quick current assets / Current Liabilities

= (Cash + Accounts receivable) / Accounts payable

2017-

Current ratio = ($28,063 + $82,980) / $118,437

= $111,043 / $118,437 = 0.94

2016-

Current ratio = ($33,466 + $57,986) / $71,398

= $91,452 / $71,398 = 1.28

2015-

Current ratio = ($35,914 + $46,490) / $46,025

= $82,404 / $46,025 = 1.79

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.