Question

Simon Company’s year-end balance sheets follow. At December 31 2017 2016 2015 Assets Cash $ 26,262 $ 30,391 $ 31,343 Accounts receivable, net 77,637 55,332 42,627 Merchandise inventory 98,570 70,278 44,508 Prepaid expenses 8,373 7,897 3,413 Plant assets, net 234,272 219,821 194,709 Total assets $ 445,114 $ 383,719 $ 316,600 Liabilities and Equity Accounts payable $ 107,508 $ 64,849 $ 41,791 Long-term notes payable secured by mortgages on plant assets 82,845 87,373 69,969 Common stock, $10 par value 162,500 162,500 162,500 Retained earnings 92,261 68,997 42,340 Total liabilities and equity $ 445,114 $ 383,719 $ 316,600 1. Compute the current ratio for the year ended 2017, 2016, and 2015. 2. Compute the acid-test ratio for the year ended 2017, 2016, and 2015.

Answer 1

Answer of Part 1:

For 2017:

Current Assets = Cash + Accounts Receivable + Inventory + Prepaid Expenses
Current Assets = $26,262 + $77,637 + $98,570 + $8,373
Current Assets = $210,842

Current Liabilities = Accounts Payable = $107,508

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $210,842 / $107,508
Current Ratio = 1.96:1

For 2016:

Current Assets = Cash + Accounts Receivable + Inventory + Prepaid Expenses
Current Assets = $30,391 + $55,332 + $70,278 + $7,897
Current Assets = $163,898

Current Liabilities = Accounts Payable = $64,849

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $163,898 / $64,849
Current Ratio = 2.53:1

For 2015:

Current Assets = Cash + Accounts Receivable + Inventory + Prepaid Expenses
Current Assets = $31,343 + $42,627 + $44,508 + $3,413
Current Assets = $121,891

Current Liabilities = Accounts Payable = $41,791

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $121,891 / $41,791
Current Ratio = 2.92:1

Answer of Part 2:

For 2017:

Acid Test Ratio = (Current Assets – Inventory – Prepaid Expenses) / Current Liabilties
Acid Test Ratio = ($210,842 - $98,750 - $8,373) / $107,508
Acid Test Ratio = $103,719 / $107,508
Acid Test Ratio = 0.96:1

For 2016:

Acid Test Ratio = (Current Assets – Inventory – Prepaid Expenses) / Current Liabilties
Acid Test Ratio = ($163,898 - $70,278 - $7,897) / $64,849
Acid Test Ratio = $85,723 / $64,849
Acid Test Ratio = 1.32:1

For 2015:

Acid Test Ratio = (Current Assets – Inventory – Prepaid Expenses) / Current Liabilties
Acid Test Ratio = ($121,891 - $44,508 - $3,413) / $41,791
Acid Test Ratio = $73,970 / $41,791
Acid Test Ratio = 1.77:1