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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 2 years ago
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