Question

In: Accounting

Using the financial information in the following tables, compute the required ratios for AJ Ltd ABC...

Using the financial information in the following tables, compute the required ratios for AJ Ltd

ABC COMPANY
BALANCE SHEET
AS OF DECEMBER 31, 2018
ASSETS 2018 2017 2016
Current assets
    Cash $501,992 $434,215 $375,141
    Accounts receivable 335,272 302,514 241,764
    Inventory 515,174 505,321 310,885
    Prepaid expenses 251,874 231,100 136,388
    Total current assets $1,604,312 $1,473,150 $1,064,178
Property, plant, and equipment 765,215 735,531 705,132
Accumulated depreciation -218,284 -196,842 -175,400
TOTAL ASSETS $2,151,243 $2,011,839 $1,593,910
LIABILITIES
Current liabilities
    Accounts payable $248,494 $366,864 $322,156
    Accrued liabilities 122,192 216,533 215,474
    Income taxes payable 10,645 25,698 22,349
    Current portion of long-term debt 42,200 42,200 42,200
    Total current liabilities $423,531 $651,295 $602,179
Long-term liabilities
    Long-term debt 425,311 400,311 375,100
TOTAL LIABILITIES $848,842 $1,051,606 $977,279
STOCKHOLDERS’ EQUITY
Common stock $370,124 $356,758 $320,841
Additional paid-in capital 29,546 24,881 21,910
Retained earnings 902,731 578,594 273,880
    Total stockholders’ equity $1,302,401 $960,233 $616,631
LIQUIDITY RATIOS: 12/31/2018 12/31/2017 Change % Change
Current ratio
Current assets/Current liabilities
Quick ratio
(Current assets – Inventory)/Current liabilities

Solutions

Expert Solution

12/31/2018 12/31/2017 Change % change
Current ratio 3.78 2.26 1.52 (increase) 67.25%
Quick ratio 2.57 1.48 1.09 (increase) 73.64%

1 Current ratio = current assets / current liabilities

Current ratio in 2017 = 1,473,150 / 651,295 = 2.26 times

2018 current ratio = 1,604,312 / 423,531= 3.78 times

Current ratio change from 2017 to 2018

= 3.78 - 2.26 = 1.52 times

% change = (change / base year ratio) × 100

Base year is 2017

% change = (1.52 / 2.26) × 100 = 67.25%

2 Quick ratio = (current assets - inventory) / current liabilities

Quick ratio in 2017

= (1,473,150 - 505,321) / 651,295 = 1.48 times

2018 Quick ratio

= (1,604,312 - 515,174) / 423,531 = 2.57 times

Change in quick ratio from 2017 to 2018

= 2.57 - 1.48 = 1.09 times

Change in % = (1.09 / 1.48) × 100 = 73.64%

The changes in current ratio from 2017 to 2018 is 1.52 times and change in quick ratio from 2017 to 2018 is 1.09 times.The both current ratio and quick is increase, it indicates that liquidity of the company is improved.

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