Exercise 13-7 Analyzing liquidity LO P3 Simon Company’s year-end balance sheets follow. At December 31 Current...

Exercise 13-7 Analyzing liquidity LO P3

Simon Company’s year-end balance sheets follow.

At December 31	Current Yr			1 Yr Ago		2 Yrs Ago
Assets
Cash		$	31,563	$	37,632	$	38,432
Accounts receivable, net			91,480		64,565		51,755
Merchandise inventory			118,469		87,025		53,471
Prepaid expenses			10,266		9,491		4,227
Plant assets, net			283,193		262,469		240,315
Total assets		$	534,971	$	461,182	$	388,200
Liabilities and Equity
Accounts payable		$	130,544	$	78,719	$	52,267
Long-term notes payable secured by mortgages on plant assets			99,569		108,193		87,508
Common stock, $10 par value			162,500		162,500		162,500
Retained earnings			142,358		111,770		85,925
Total liabilities and equity		$	534,971	$	461,182	$	388,200

(1-a) Compute the current ratio for each of the three years.
(1-b) Did the current ratio improve or worsen over the three year period?
(2-a) Compute the acid-test ratio for each of the three years.
(2-b) Did the acid-test ratio improve or worsen over the three year period?

Solutions

Expert Solution

		Current Yr	1 Yr Ago	2 Yrs Ago
(1-a)	Current ratio	1.93	2.52	2.83
	(Current Assets/Current Liabilities)

(1-b)	improve


(1-c)	Quick ratio	0.94	1.30	1.73
	[(Current Assets - Inventory - Prepaid Exp)/Current Liabilities)]

(1-d)	improve

	Working
	Current Assets
	Cash	31,563	37,632	38,432
	Accounts receivable, net	91,480	64,565	51,755
	Merchandise inventory	118,469	87,025	53,471
	Prepaid expenses	10,266	9,491	4,227
		251,778	198,713	147,885

	Current Liabilities
	Accounts Payable	130,544	78,719	52,267

ekkarill92 answered 1 year ago

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