Question

Simon Company’s year-end balance sheets follow.

At December 31	Current Yr				1 Yr Ago			2 Yrs Ago
Assets
Cash		$	35,049		$	40,969		$	41,831
Accounts receivable, net			103,593			70,985			57,464
Merchandise inventory			123,926			93,802			61,818
Prepaid expenses			11,175			10,541			4,648
Plant assets, net			314,421			290,741			261,039
Total assets		$	588,164		$	507,038		$	426,800
Liabilities and Equity
Accounts payable		$	146,453		$	86,546		$	55,211
Long-term notes payable secured by mortgages on plant assets			111,681			116,619			96,209
Common stock, $10 par value			162,500			162,500			162,500
Retained earnings			167,530			141,373			112,880
Total liabilities and equity		$	588,164		$	507,038		$	426,800

(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?

Answer 1

1a) Current ratio = Current assets/Current liabilities

	Current assets	/	Current liabilities	=	Current ratio
Current Yr	273743	/	146,453		1.87
1 Yr ago	216297	/	86546		2.50
2 Yr ago	165761		55211		3.00

1b) Worsen,

2a) Acid test ratio = Cash+Account receivable/Current liabilities

	Current assets	/	Current liabilities	=	Current ratio
Current Yr	138642	/	146,453		0.95
1 Yr ago	111954	/	86546		1.29
2 Yr ago	99295		55211		1.80

2b) Worsen,