Question

Maple Trump Winery requested that you determine whether the company's ability to pay its current liabilities and long-term debts improved or deteriorated during 2018.

To answer this question, compute the following ratios for 2018 and 2017 :

(a) current ratio, (b) quick ratio, (c) debt ratio, and (d) interest coverage ratio. Round all ratios to two decimal places. Summarize the results of your analysis.

	2018	2017
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$77,000	$70,000
Short-term investments. . . . . . . . . . . . . . . . .	15,000	2,000
Accounts receivable, net. . . . . . . . . . . . . . . .	185,000	94,000
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . .	420,000	300,000
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . .	9,000	10,000
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . .	860,000	520,000
Total current liabilities. . . . . . . . . . . . . . . . . . .	170,000	245,000
Long-term note payable. . . . . . . . . . . . . . . . .	190,000	280,000
Income from operations. . . . . . . . . . . . . . . . .	120,000	106,000
Interest expense. . . . . . . . . . . . . . . . . . . . . . .	20,000	33,000

To answer this​ question, compute the following ratios for 2018 and 2017​:

​(a) current​ ratio, (b) quick​ ratio, (c) debt​ ratio, and​ (d) interest-coverage ratio. Round all ratios to two decimal places. ​(Abbreviations used: Avg​ = Average, EBIT​ = Earnings before interest and​ taxes, LT​ = Long-term, and ST​ = Short-term.)

Begin with a. current ratio.

Select the formula and then enter the amounts to calculate the current ratios.

Answer 1

		2018	2017
	Cash	77,000.00	70,000.00
	Short Term Investments	15,000.00	2,000.00
	Accounts Receivable, net	185,000.00	94,000.00
	Inventory	420,000.00	300,000.00
	Prepaid Expenses	9,000.00	10,000.00
	Total Assets	860,000.00	520,000.00
	Total current liabilities	170,000.00	245,000.00
	Long Term Notes Payable	190,000.00	280,000.00
	Income from operations	120,000.00	106,000.00
	Interest Expense	20,000.00	33,000.00
a)	Current Ratio	=	Current Assets/ Current Liabilities
	Current Assets	2018	2017
	Cash	77,000.00	70,000.00
	Short Term Investments	15,000.00	2,000.00
	Accounts Receivable, net	185,000.00	94,000.00
	Inventory	420,000.00	300,000.00
	Prepaid Expenses	9,000.00	10,000.00
	Current Assets	706,000.00	476,000.00
	Current Assets 2018	=	706000/170000
			4.15
	Current Assets 2017	=	476000/245000
			1.94
b)	Quick Ratio	=	Curret Assets-Prepaid Expense-Inventory/ Current Liabilities
	Quick Ratio 2018		(706000-9000-420000)/170000
			1.63
	Quick Ratio 2017		(476000-10000-300000)/245000
			0.68
	Total Liabilities	2018	2017
	Total current liabilities	170,000.00	245,000.00
	Long Term Notes Payable	190,000.00	280,000.00
	Total Liabilities	360,000.00	525,000.00
c)	Debt Ratio	=	Total Liabilities/ Total Assets
	2018 Debt Ratio	=	360000/860000
			0.42
	2017 Debt Ratio	=	525000/520000
			1.01
d)	Interest Coverage Ratio	=	Earning before interest and taxes/Interest
	2018 Interest coverage ratio	=	120000/20000
			6
	2017 Interest coverage ratio	=	106000/33000
			3.21