Question

Classifying Balance Sheet and Income Statement Accounts and Computing Quick Ratio
El Puerto de Liverpool (Liverpool) is a large retailer in Mexico. The following accounts are selected from its annual report for the fiscal year ended December 31, 2013. The amounts below are in thousands of Mexican pesos.

a. Indicate the appropriate classification of each account as appearing in either its balance sheet (B) or its income statement (I).

(Pesos thousands)	Amount	Classification
Total Revenue	148,210,888	I
Retained Earning	100,695,564	B
Inventory	22,843,938	B
administration expenses	38,795,562	I
total assets	189,873,808	B
long term loans from financial institution	1,842,912	B
financing costs	2,177,784	I
total current assests	65,724,069	B
total stockholder equity	109,654,664	B
prepaid equity	1,234,774	B
total non-credit liabilities	28,966,202	B

b. Determine Liverpool's total liabilities and current liabilities as of December 31 2013.

Total liabilities:

Total current liabilities:

c. Calculate Liverpool's quick ratio as of December 31, 2013. (Assume that Liverpool only has five types of current assets- cash, marketable securities, accounts receivable, inventory and prepaid expenses.) Round your answers to two decimal places.

Quick Ratio:

Answer 1

Answer: a

	Classification
Total revenue	Revenue	Income Statement
Retained earnings	Equity	Balances sheet
Inventory	Current assets	Balances sheet
Administration expenses	Operating expenses	Income Statement
Total assets	Assets	Balances sheet
Long term loans	Long term liabilities	Balances sheet
Financing cost	Non operating expenses	Income Statement
Total current assets	Assets	Balances sheet
Total stock holders equity	Equity	Balances sheet
Prepaid expenses	Current assets	Balances sheet
Total non current liabilities	Liabilities	Balances sheet

Answer: b

Total Liabilities = Total assets = 189,873,808

Current Liabilities = Total liabilities - (total equity + Non current liabilities)

= 189,873,808 - (109,654,664 + 28,966,202)

= 189,873,808 – 138,620,866 = 51,252,942

Answer: c

Quick ratio = Quick assets / Current liabilities

Calculation of Quick Assets:

Current assets	65,724,069
(-) Inventory	22,843,938
(-) Prepaid expenses	12,34,774
Quick assets	41,645,357

• Then Quick Ratio = = 41,645,357 / 51,252,942 = 0.81