Exercise 137 Liquidity analysis LO P3 Simon Companys yearend

Exercise 13-7 Liquidity analysis LO P3 Simon Company\'s year-end balance sheets follow. At December 31 Assets Cash Accounts receivable, net Merchandise inventory Prepaid expenses Plant assets, net Total assets Liabilities and Equity Accounts payable 2017 016 201 $36, 500 $40, 975 $43,563 101,599 72,446 57,514 133,00995,733 61,259 11,63810,867 4,793 329,773308, 913 264,271 $612,519 $528,034 $431,400 $152,517$ 87,453 $ 56,375 Aenguterm pnotes payable secured by mortgages on plant assets Common stock, $10 par value Retained earnings Total liabilities and equity 114,e02 121,448 93,433 162,500 162,500 162,500 183,500 156,633 119,092 $612,519 $528,034 $431,400 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.

Solution

2017 2016 2015 Cash      36,500      40,975      43,563 Accounts Receivable, Net    101,599      72,446      57,514 Merchandise Inventory    133,009      95,733      61,259 Prepaid Expenses      11,638      10,867         4,793 Total Current Assets    282,746    220,021    167,129 Accounts Payable    152,517      87,453      56,375 Total Current Liabilities    152,517      87,453      56,375 Requirement 1 Current Ratio Year Choose Numerator / Choose Denominator = Current Ratio Current Assets / Current Liabilites = Current Ratio 2017                         282,746 / 152,517 = 1.85 to 1 2016                         220,021 / 87,453 = 2.52 to 1 2015                         167,129 / 56,375 = 2.96 to 1 Requirement 2 Acid Test Ratio Year Choose Numerator / Choose Denominator = Acid Test Ratio Cash + Accounts Receivable, Net / Current Liabilites = Acid Test Ratio 2017      36,500 + 101,599 / 152,517 = 0.67 to 1 2016      40,975 + 72,446 / 87,453 = 0.83 to 1 2015      43,563 + 57,514 / 56,375 = 1.02 to 1