Question

# 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 \$ 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?

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,

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