Answer:
Simon Company
1-a) Current ratio = 1.88 2.52 2.87
= Current assets/Current liabilities
1-b. The current ratio worsened over the three-year period.
2-a) Acid-test ratio = 1.02 1.43 1.81
= (Current assets - Inventory)/Current liabilities
2-b) The acid-test ratio worsened over the three-year period.
Explanation:
a) Data and Calculations:
At December 31 Current Yr 1 Yr Ago 2 Yrs Ago
Assets
Cash $ 31,800 $ 35,625 $ 37,800
Accounts receivable, net 89,500 62,500 50,200
Merchandise inventory 112,500 82,500 54,000
Prepaid expenses 10,700 9,375 5,000
Total current assets $244,500 $190,000 $147,000
Plant assets, net 278,500 255,000 230,500
Total assets $ 523,000 $ 445,000 $ 377,500
Liabilities and Equity
Accounts payable $ 129,900 $ 75,250 $ 51,250
Long-term notes payable secured by
mortgages on plant assets 98,500 101,500 83,500
Common stock, $10 par value 163,500 163,500 163,500
Retained earnings 131,100 104,750 79,250
Total liabilities and equity $ 523,000 $ 445,000 $ 377,500
1-a) Current ratio = 1.88 2.52 2.87
= Current assets/Current liabilities
= Total current assets $244,500 $190,000 $147,000
Accounts payable $ 129,900 $ 75,250 $ 51,250
1-b. The current ratio worsened over the three-year period.
2-a) Acid-test ratio = 1.02 1.43 1.81
= (Current assets - Inventory)/Current liabilities
Current assets - Inventory $132,000 $107,500 $93,000
Accounts payable $ 129,900 $ 75,250 $ 51,250
2-b) The acid-test ratio worsened over the three-year period.
