A firm€™s balance sheets for the last two years are as follows:

Sales in 20X1 were $250,000. Sales in 20X2 were $250,000.

a. Based solely on the current ratio and the quick ratio, has the firm€™s liquidity position deteriorated or improved?

b. Without doing a calculation, has days sales outstanding (receivables turnover) improved? How do you know?

c. Without doing a calculation, has inventory turnover deteriorated? How do you know?

d. If the firm earned $5,000 during 2012, what proportion of those earnings were distributed?

Transcribed Image Text:

YEAR 20X1 Liabilities and Equity Assets Cash $19,000 Accounts payable $12,000 Accruals 10,000 Current bank note Accounts receivable 11,000 10,000 20,000 Long-term debt Inventory 32,000 Plant and equipment Common stock 50,000 14,000 Retained earnings 22,000 $100,000 $100,000 YEAR 20X2 Liabilities and Equity Assets Cash $2,000 Accounts payable $12,000 Accruals 10,000 Accounts receivable 28,000 Current bank note 30,000 Inventory 20,000 Long-term debt 10,000 Plant and equipment 50,000 Common stock 14,000 Retained earnings 24,000 $100,000 $100,000