Hi, I need to find the current ratio and the acid-test ratio. I know the equatio
ID: 2553283 • Letter: H
Question
Hi, I need to find the current ratio and the acid-test ratio. I know the equations for both, but have been having difficulties with calculating the correct answer
Unadjusted Trial Balance
Account
Debit
Credit
Cash
-350
Merch. Inv.
12,000
Store Supplies
5,900
Prepaid Ins
2,500
Store Equip
42,900
Accumulated depreciation - Store Equip.
16,250
Accounts Payable
15,000
Capital
17,000
Withdrawls
2,100
Sales
114,550
Sales Discounts
1,800
Sales Returns & Allowances
2,050
Cost of Goods Sold
38,000
Depreciation Exp. - Store Equip.
0
Salaries Exp.
30,400
Ins. Exp.
0
Rent Exp.
16,000
Store Supplies Exp.
0
Advertising Exp.
9,500
Total
162,800
162,800
Additional Info
a. Store supplies still available at fiscal year-end amount to $2,700
b. Expired ins. for the fiscal year is $1,550
c. Depreciation expense on store equip. is $1,625 for the fiscal year
d. Physical count of ending merchandise inventory shows $10,200 of inventory is still available at fiscal year-end
current ratio = current assets / current liabilities
acid-test ratio = (cash and cash equivalents + short-term investments + current receivables) / current liabilities
Unadjusted Trial Balance
Account
Debit
Credit
Cash
-350
Merch. Inv.
12,000
Store Supplies
5,900
Prepaid Ins
2,500
Store Equip
42,900
Accumulated depreciation - Store Equip.
16,250
Accounts Payable
15,000
Capital
17,000
Withdrawls
2,100
Sales
114,550
Sales Discounts
1,800
Sales Returns & Allowances
2,050
Cost of Goods Sold
38,000
Depreciation Exp. - Store Equip.
0
Salaries Exp.
30,400
Ins. Exp.
0
Rent Exp.
16,000
Store Supplies Exp.
0
Advertising Exp.
9,500
Total
162,800
162,800
Explanation / Answer
Adjusted Trial Balance
Account
Debit
Credit
Cash
-350
Merch. Inv.
10,200
Store Supplies
2,700
Prepaid Ins
950
Store Equip
42,900
Accumulated depreciation - Store Equip.
17,875
Accounts Payable
15,000
Capital
17,000
Withdrawls
2,100
Sales
114,550
Sales Discounts
1,800
Sales Returns & Allowances
2,050
Adjusted Cost of Goods Sold
39,800
Depreciation Exp. - Store Equip.
1,625
Salaries Exp.
30,400
Ins. Exp.
1,550
Rent Exp.
16,000
Store Supplies Exp.
3,200
Advertising Exp.
9,500
Total
164,425
164,425
Adjusted Cost of Goods sold
= (Merch. Inv in unadjusted Trial - Physical count) + Cost of Goods sold in Balance Sheet
= (12,000 - 10,200) + 38,000
= 39,800
1. Current ratio
= Current assets / Current liabilities
= (cash + merch inv + store supplies + prepaid Ins + store equipment) / (accounts payable)
= (-350 + 10,200 + 2,700 + 950 + 42,900) / (15,000)
= 56,400 / 15,000
= 3.76
2.Acid-test ratio
= (cash and cash equivalents + short-term investments + current receivables) / current liabilities
= (-350) / 15,000
= -0.023
Adjusted Trial Balance
Account
Debit
Credit
Cash
-350
Merch. Inv.
10,200
Store Supplies
2,700
Prepaid Ins
950
Store Equip
42,900
Accumulated depreciation - Store Equip.
17,875
Accounts Payable
15,000
Capital
17,000
Withdrawls
2,100
Sales
114,550
Sales Discounts
1,800
Sales Returns & Allowances
2,050
Adjusted Cost of Goods Sold
39,800
Depreciation Exp. - Store Equip.
1,625
Salaries Exp.
30,400
Ins. Exp.
1,550
Rent Exp.
16,000
Store Supplies Exp.
3,200
Advertising Exp.
9,500
Total
164,425
164,425
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