Question

Simon Company's year-end balance sheets follow. Current yr 1 Yr Ago 2 Yrs Ago At December 31 Assets Cash Accounts receivable, net Merchandise inventory Prepaid expenses Plant assets, net Total assets Liabilities and Equity Accounts payable Long-ters notes payable secured by mortgages on plant assets Coon stock. $10 par value Retained earnings Total liabilities and equity $ 32,734 96,790 122,900 10,541 297,454 $560.419 $ 39,036 $ 39,857 68,313 52,612 38,483 57. 169 10,247 4.517 277,041 248,445 $483.120 5402.600 $142,335 $ 82,464 $ 54,206 107.466 162,500 148.118 5560,419 113.300 89.864 162,500 162,500 124.816 96.030 483.120 ste2.600 al Compute the current ratio for each of the three years - Od the current to prove or worsen over the three year period al Compute the id test for each of the three years 12. Od the wides p rove or worsen over the three year period Complete this question by entering your answers in the tabs below. A r red 10 red 2A Required 28 Comote the acidtestato for each of the three years Acadestrato Current Ye: - Acid Test Ratio Oto 1 Cost of goods sold Current sets Current Labile Required 10 0101 0 to 1 Required 23 >

Answer 1

Ans. 1a	Current ratio   =   Total current assets / Total current liabilities
	Current Yr	$262,965 / $142,335	1.85 : 1
	1 Yr Ago	$206,079 / $82,464	2.50 : 1
	2 Yrs Ago	$154,155 / $54,206	2.84 : 1
Ans. 1b	Yes, the current ratio is improving over the three year period as it is increasing every year.
Ans. 2a	Acid test ratio   =   (Cash + Marketable securities + Accounts receivable) / Total current liabilities
	Current Yr	($32734 + $0 + $96,790) / $142,335		0.91 : 1
	1 Yr Ago	($39,036 + $0 + $68,313) / $82,464		1.30 : 1
	2 Yrs Ago	($39,857 + $0 + $52,612) / $54,206		1.71 : 1
	*Merchandise inventory and prepaid expenses are not the part of quick assets.
Ans. 2b	Yes, the Acid test ratio is improving over the three year period as it is increasing every year.
	*Working Notes:
*Calculations for total current assets:
	Assets:	Current Yr	1 Yr Ago	2 Yrs Ago
	Cash	$32,734	$39,036	$39,857
	Accounts receivables	$96,790	$68,313	$52,612
	Merchandise inventory	$122,900	$88,483	$57,169
	Prepaid expenses	$10,541	$10,247	$4,517
	Total current assets (a)	$262,965	$206,079	$154,155
*Calculations for total current liabilities:
	Liabilities	Current Yr	1 Yr Ago	2 Yrs Ago
	Accounts payable	$142,335	$82,464	$54,206
	Total current liabilities (a)	$142,335	$82,464	$54,206
	Accounts payable is an only current liability.