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?

Homework Answers

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,

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