Question

General Instructions 1. The following worksheet may be used to complete the exercise/problem. You may need to refer to your textbook for additional information.  2. The blue cells are for data entry. Enter text in the T cells, formulas in the F cells, and dollars or numbers in the $ cells. 3. The completed exercise/problem may be printed or e-mailed per direction from your instructor. P2-3A The following balance sheet items, listed in alphabetical order, are available from the records of Singer Compnay at December 31, 2016: Accounts payable34,280 Accounts receivable26,700 Accumulated depreciation—buildings40,000 Accumulated depreciation—equipment12,500 Bonds payable, due December 31, 2022250,000 Buildings150,000 Capital stock, $1 par value200,000 Cash60,790 Equipment84,500 Income taxes payable7,500 Interest payable2,200 Land250,000 Marketable securities15,000 Merchandise inventory112,900 Notes payable, due April 15, 20176,500 Office supplies400 Paid-in capital in excess of par value75,000Patents45,000 Prepaid rent3,600 Retained earnings113,510 Salaries payable7,400 Required 1. Prepare a classified balance sheet as of December 31, 2016 Note: List assets and liabilities in the order of liquidity SINGER COMPANY BALANCE SHEET DECEMBER 31, 2016 Assets Current assets: T $ T $ T $ T $ T $ T $ Total current assets F Property, plant, and equipment: T $ T$ T$F T$ T$F Total property, plant, and equipment F Intangible assets: T $ Total assets F Liabilities Current liabilities: T $ T $ T $ T $ T $ Total current liabilities F Long-term debt: T $ Total liabilities F Stockholders’ Equity Contributed capital: T T $ T $ Total contributed capital F T $ Total stockholders’ equity F Total liabilities and stockholders’ equity F 2. Compute Singer’s current ratio. (Round answers to 2 decimal places) Current Ratio$=F $ 3. On the basis of your answer to (2), does Singer appear to be liquid? What other information do you need to fully answer that question? T T T T T T

Answer 1

SINGER COMPANY
BALANCE SHEET
DECEMBER 31, 2010
Assets
Current assets:
Cash		$ 60,790.00
Marketable securities		$ 15,000.00
Accounts receivable		$ 26,700.00
Merchandise inventory		$112,900.00
Prepaid rent		$ 3,600.00
Office supplies		$    400.00
Total current assets			$219,390.00
Property, plant, and equipment:
Land		$250,000.00
Buildings	$150,000.00
Less: Accumulated depreciation	$ 40,000.00	$110,000.00
Equipment	$ 84,500.00
Less: Accumulated depreciation	$ 12,500.00	$ 72,000.00
Total property, plant, and equipment			$432,000.00
Intangible assets:
Patents			$ 45,000.00
Total assets			$696,390.00
Liabilities
Current liabilities:
Accounts payable		$ 34,280.00
Income taxes payable		$ 7,500.00
Interest payable		$ 2,200.00
Notes payable, due April 15, 2011		$ 6,500.00
Salaries payable		$ 7,400.00
Total current liabilities			$ 57,880.00
Long-term debt:
Bonds payable, due December 31, 2016			$250,000.00
Total liabilities			$307,880.00
Stockholders’ Equity
Contributed capital:
Capital stock, $1 par value, 200,000
shares issued and outstanding		$200,000.00
Paid-in capital in excess of par value		$ 75,000.00
Total contributed capital		$275,000.00
Retained earnings		$113,510.00
Total stockholders’ equity			$388,510.00
Total liabilities and stockholders’ equity			$696,390.00
2. Compute Singer’s current ratio.
(Round answers to 2 decimal places)
Current Ratio = 219390/57880	219390	3.79
	57880

From the current ratio alone, Singer appears to be relatively liquid. In fact, Singer may be too liquid, in that its cash balance is greater than its total current liabilities. Singer may be missing significant investment opportunities by maintaining such a   large cash balance. To fully assess its liquidity, it would be useful to look more specifically at the activity in accounts receivable and merchandise inventory. How long does it take to collect an account receivable? How long does it take to sell inventory? Also, you would want to compare Singer’s current ratio at the end of this period with prior periods, and with the current ratio for companies in the same industry.