Refer to Simon Companys balance sheets in Exercise 17-6. (1) Compute the current ratio for each of
Question:
Refer to Simon Company’s balance sheets in Exercise 17-6.
(1) Compute the current ratio for each of the three years. Did the current ratio improve or worsen over the three-year period?
(2) Compute the acid-test ratio for each of the three years. Did the acid-test ratio improve or worsen over the three-year period? Round ratios to two decimals.
Data from Exercise 17-6
2 Yrs Ago At December 31 Current Yr 1 Yr Ago Assets $ 31,800 $ 35,625 $ 37,800 Cash.... Accounts receivable, net 89,500 62,500 50,200 Merchandise inventory.. Prepaid expenses.. Plant assets, net. Total assets .. 82,500 112,500 54,000 10,700 9,375 5,000 278,500 230,500 255,000 $523,000 $445,000 $377,500 Llabilities and Equilty Accounts payable.. $ 75,250 $ 51,250 $129,900 Long-term notes payable secured by mortgages on plant assets 101,500 98,500 83,500 Common stock, $10 par value. 163,500 163,500 163,500 Retained earnings.... 131,100 104,750 79,250 Total liabilities and equity. $523,000 $445,000 $377,500
Step by Step Answer:
1 Current ratio Analysis Worsened Simons current ratio has wor...View the full answer
Related Video
The current ratio is a financial ratio that measures a company\'s ability to pay its short-term obligations with its short-term assets. It is calculated by dividing a company\'s current assets by its current liabilities. The formula for calculating the current ratio is: Current Ratio = Current Assets / Current Liabilities Current assets are assets that can be converted to cash within one year, while current liabilities are debts that are due within one year. A current ratio of 1:1 or greater is generally considered good, as it indicates that a company has enough current assets to cover its current liabilities. A current ratio of less than 1:1 may suggest that a company may have difficulty meeting its short-term obligations. It\'s important to note that the current ratio is just one of many financial ratios that can be used to assess a company\'s financial health. It should be used in conjunction with other financial ratios and qualitative factors to make informed decisions about investing or lending to a company.
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