Question

Please calculate the current ratio and acid test from the balance sheet and income statement below.

I am not sure what I am doing wrong here to calculate the current ratio and acid test ratio for 2017 and 2018. Do I need to include the current notes payable due this within the year as a current liability ?

Marin Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown, who owns 15% of the common stock, was one of the organizers of Marin and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, 2018, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two $34,920 notes, which are due on June 30, 2018, and September 30, 2018. Another note of $5,970 is due on March 31, 2019, but he expects no difficulty in paying this note on its due date. Brown explained that Marin’s cash flow problems are due primarily to the company’s desire to finance a $300,720 plant expansion over the next 2 fiscal years through internally generated funds.

The commercial loan officer of Topeka National Bank requested the following financial reports for the last 2 fiscal years.

Balance Sheet
	2018	2017
Assets
Cash	18,120	12,410
N/R	148,700	130,840
A/R	132,830	125,880
Inventories	104,150	50,010
PPE	1,440,600	1,429,490
Total assets	1,844,400	1,748,630
Liabilities and Stockholders Equity
A/P	78,220	90,330
N/P	75,500	61,590
Accrued Liab	2,760	23,230
C/S	1,298,610	1,290,550
RE	389,310	282,930
Total Liab and SE	1,844,400	1,748,630
aCash dividends were paid at the rate of $1 per share in fiscal year 2017 and $2 per share in fiscal year 2018.
Income Statement
	2018	2017
Sales Revenue	2,992,720	2,693,360
COGS	1,514,810	1,418,870
Gross Margin	1,477,910	1,274,490
Operating Exp.	856,040	775,840
Income before	621,870	498,650
taxes
Income taxes	248,748	199,460
Net Income	373,122	299,190

^{INcome statement -} Depreciation charges on the plant and equipment of $100,020 and $102,710 for fiscal years ended March 31, 2017 and 2018, respectively, are included in cost of goods sold.

Answer 1

Solution:

Current ratio = Current assets / Current liabilties

Current Assets = Cash + N/R + A/r + Inventories

Current assets 2018 = $18,120 + $148,700 + $132,830 + $104,150 = $403,800

Current assets 2017 = $12,410 + $130,840 + $125,880 + $50,010 = $319,140

Current liabilities 2018 = A/P + N/P + Accrued liabilities = $78,220 + $75,500 + $2,760 = $156,480

Current liabilities 2017 = $90,330 + $61,590 + $23,230 = $175,150

Current ratio:

2018 = $403,800 / $156,480 = 2.58:1

2017 = $319,140 / $175,150 = 1.82:1

Acid test ratio = Quick assets / Current liabilities

Quick assets = Current assets - Inventories

Quick assets 2018 = $403,800 - $104,150 = $299,650

Quick Assets 2017 = $319,140 - $50,010 = $269,130

Acid test ratio 2018 = $299,650 / $156,480 = 1.91:1

Acid test ratio 2017 = $269,130 / $175,150 = 1.54:1