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Simon Company’s year-end balance sheets follow. At December 31 Current Yr 1 Yr Ago 2 Yrs...

Simon Company’s year-end balance sheets follow.

At December 31 Current Yr 1 Yr Ago 2 Yrs Ago
Assets
Cash $ 29,554 $ 34,899 $ 37,080
Accounts receivable, net 87,405 62,306 48,470
Merchandise inventory 113,192 83,964 53,185
Prepaid expenses 9,420 9,439 3,958
Plant assets, net 271,571 250,032 224,507
Total assets $ 511,142 $ 440,640 $ 367,200
Liabilities and Equity
Accounts payable $ 131,093 $ 75,213 $ 49,440
Long-term notes payable secured by
mortgages on plant assets		 96,095 104,388 80,340
Common stock, $10 par value 162,500 162,500 162,500
Retained earnings 121,454 98,539 74,920
Total liabilities and equity $ 511,142 $ 440,640 $ 367,200


(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 Ratio
Choose Numerator: / Choose Denominator: = Current Ratio
Current assets / Current liabilities = Current ratio
Current Yr 239571 / 131093 = 1.83 to 1
1 Yr Ago 190608 / 75213 = 2.53 to 1
2 Yrs Ago 142693 / 49440 = 2.89 to 1
1b
Current ratio worsen over the three year period
2a
Acid-Test Ratio
Choose Numerator: / Choose Denominator: = Acid-Test Ratio
Cash + Short-term investments + Current receivables / Current liabilities = Acid-test ratio
Current Yr 29554 + 0 + 87405 / 131093 = 0.89 to 1
1 Yr Ago 34899 + 0 + 62306 / 75213 = 1.29 to 1
2 Yrs Ago 37080 + 0 + 48470 / 49440 = 1.73 to 1
2b
Acid-test ratio worsen over the three year period
Workings:
Current Yr 1 Yr Ago 2 Yrs Ago
Cash 29554 34899 37080
Accounts Receivable 87405 62306 48470
Merchandise Inventory 113192 83964 53185
Prepaid expenses 9420 9439 3958
Current assets 239571 190608 142693

ekkarill92 answered 2 years ago
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