The current ratio for the past two year, and discuss whether the current ratio improve or weaken in the most recent year.

Question

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Answer 1

Question

Chapter 8, Problem 8.3APFA

Requirement – 1

To determine

To calculate: The current ratio for the past two year, and discuss whether the current ratio improve or weaken in the most recent year.

Requirement – 1

Expert Solution

Explanation of Solution

Current ratio:

Current ratio is used to determine the relationship between current assets and current liabilities. Current ratio is determined by dividing current assets and current liabilities.

Formula:

$Current Ratio=Current assetsCurrent liabilities$

The current ratio of Company B for the past two year is as follows:

In 2012:

$Current ratio=Current assetsCurrent liabilities=$320,127$109,831 =2.91 times$

In 2013:

$Current ratio=Current assetsCurrent liabilities=$276,873 $128,9561=2.15 times$

Conclusion

Therefore, the current ratio in the most recent year (2013) is weakened.

Requirement – 2

To determine

To calculate: The acid test ratio for the past two year, and discuss whether the acid test ratio improve or weaken in the most recent year.

Requirement – 2

Expert Solution

Explanation of Solution

Acid-test Ratio:

It is a ratio used to determine a company’s ability to pay back its current liabilities by liquid assets that are current assets except inventory and prepaid expenses.

Formula:

$Acid-test Ratio=Cash+Accounts Receivable+Short-term InvestmentsCurrent Liabilities$

The acid test ratio of Company B for the past two year is as follows:

In 2012:

$Acid-test ratio = (Cash+Short-term investments+Accounts receivable)Current liabilities=($ 166,511 +$29,998+$4,584 )$109,831=1.83 times$

In 2013:

$Acid-test ratio = (Cash+Short-term investments+Accounts receivable)Current liabilities=($117,608 +$26,414+$3,470)$128,956=1.14 times$

Conclusion

Therefore, the acid test ratio in the most recent year (2013) is weakened.

Requirement – 3

To determine

The manner in which the current ratio and acid test ratio will change, if Company B purchased $50 million of inventory by debiting inventory and crediting accounts payable.

Requirement – 3

Expert Solution

Explanation of Solution

Calculate current ratio if company purchased $50 million of inventory by debiting inventory and crediting accounts payable.

If the company purchases $50 million of inventory, the current assets (inventory) and the current liabilities (accounts payable) both increase by $50 million. Thus, this transaction decreases the current ratio. The calculation is as given below:

Before:

$Current ratio=Current assetsCurrent liabilities=$276,873 $128,9561=2.15 times$

After:

$Current ratio=Current assetsCurrent liabilities=$276,873 +50$128,9561+50=1.83 times$

Calculate acid-test ratio if company purchased $50 million of inventory by debiting inventory and crediting accounts payable.

If the company purchases $50 million of inventory, the current liabilities increase by $50 million, but the quick assets remain same. Hence, this transaction decreases the acid-test ratio. The calculation is as given below:

Before:

$Acid-test ratio = (Cash+Short-term investments+Accounts receivable)Current liabilities=($117,608 +$26,414+$3,470)$128,956=1.14 times$

After:

$Acid-test ratio = (Cash+Short-term investments+Accounts receivable)Current liabilities=($117,608 +$26,414+$3,470)+50$128,956+50=1.10 times$

Conclusion

Therefore, both current and acid test ratio is decreased.

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Answer 2

Question

Chapter 8, Problem 8.3APFA

Requirement – 1

To determine

To calculate: The current ratio for the past two year, and discuss whether the current ratio improve or weaken in the most recent year.

Requirement – 1

Expert Solution

Explanation of Solution

Current ratio:

Current ratio is used to determine the relationship between current assets and current liabilities. Current ratio is determined by dividing current assets and current liabilities.

Formula:

$Current Ratio=Current assetsCurrent liabilities$

The current ratio of Company B for the past two year is as follows:

In 2012:

$Current ratio=Current assetsCurrent liabilities=$320,127$109,831 =2.91 times$

In 2013:

$Current ratio=Current assetsCurrent liabilities=$276,873 $128,9561=2.15 times$

Conclusion

Therefore, the current ratio in the most recent year (2013) is weakened.

Requirement – 2

To determine

To calculate: The acid test ratio for the past two year, and discuss whether the acid test ratio improve or weaken in the most recent year.

Requirement – 2

Expert Solution

Explanation of Solution

Acid-test Ratio:

It is a ratio used to determine a company’s ability to pay back its current liabilities by liquid assets that are current assets except inventory and prepaid expenses.

Formula:

$Acid-test Ratio=Cash+Accounts Receivable+Short-term InvestmentsCurrent Liabilities$

The acid test ratio of Company B for the past two year is as follows:

In 2012:

$Acid-test ratio = (Cash+Short-term investments+Accounts receivable)Current liabilities=($ 166,511 +$29,998+$4,584 )$109,831=1.83 times$

In 2013:

$Acid-test ratio = (Cash+Short-term investments+Accounts receivable)Current liabilities=($117,608 +$26,414+$3,470)$128,956=1.14 times$

Conclusion

Therefore, the acid test ratio in the most recent year (2013) is weakened.

Requirement – 3

To determine

The manner in which the current ratio and acid test ratio will change, if Company B purchased $50 million of inventory by debiting inventory and crediting accounts payable.

Requirement – 3

Expert Solution

Explanation of Solution

Calculate current ratio if company purchased $50 million of inventory by debiting inventory and crediting accounts payable.

If the company purchases $50 million of inventory, the current assets (inventory) and the current liabilities (accounts payable) both increase by $50 million. Thus, this transaction decreases the current ratio. The calculation is as given below:

Before:

$Current ratio=Current assetsCurrent liabilities=$276,873 $128,9561=2.15 times$

After:

$Current ratio=Current assetsCurrent liabilities=$276,873 +50$128,9561+50=1.83 times$

Calculate acid-test ratio if company purchased $50 million of inventory by debiting inventory and crediting accounts payable.

If the company purchases $50 million of inventory, the current liabilities increase by $50 million, but the quick assets remain same. Hence, this transaction decreases the acid-test ratio. The calculation is as given below:

Before:

$Acid-test ratio = (Cash+Short-term investments+Accounts receivable)Current liabilities=($117,608 +$26,414+$3,470)$128,956=1.14 times$

After:

$Acid-test ratio = (Cash+Short-term investments+Accounts receivable)Current liabilities=($117,608 +$26,414+$3,470)+50$128,956+50=1.10 times$

Conclusion

Therefore, both current and acid test ratio is decreased.

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Answer 3

Question

Chapter 8, Problem 8.3APFA

Requirement – 1

To determine

To calculate: The current ratio for the past two year, and discuss whether the current ratio improve or weaken in the most recent year.

Requirement – 1

Expert Solution

Explanation of Solution

Current ratio:

Current ratio is used to determine the relationship between current assets and current liabilities. Current ratio is determined by dividing current assets and current liabilities.

Formula:

$Current Ratio=Current assetsCurrent liabilities$

The current ratio of Company B for the past two year is as follows:

In 2012:

$Current ratio=Current assetsCurrent liabilities=$320,127$109,831 =2.91 times$

In 2013:

$Current ratio=Current assetsCurrent liabilities=$276,873 $128,9561=2.15 times$

Conclusion

Therefore, the current ratio in the most recent year (2013) is weakened.

Requirement – 2

To determine

To calculate: The acid test ratio for the past two year, and discuss whether the acid test ratio improve or weaken in the most recent year.

Requirement – 2

Expert Solution

Explanation of Solution

Acid-test Ratio:

It is a ratio used to determine a company’s ability to pay back its current liabilities by liquid assets that are current assets except inventory and prepaid expenses.

Formula:

$Acid-test Ratio=Cash+Accounts Receivable+Short-term InvestmentsCurrent Liabilities$

The acid test ratio of Company B for the past two year is as follows:

In 2012:

$Acid-test ratio = (Cash+Short-term investments+Accounts receivable)Current liabilities=($ 166,511 +$29,998+$4,584 )$109,831=1.83 times$

In 2013:

$Acid-test ratio = (Cash+Short-term investments+Accounts receivable)Current liabilities=($117,608 +$26,414+$3,470)$128,956=1.14 times$

Conclusion

Therefore, the acid test ratio in the most recent year (2013) is weakened.

Requirement – 3

To determine

The manner in which the current ratio and acid test ratio will change, if Company B purchased $50 million of inventory by debiting inventory and crediting accounts payable.

Requirement – 3

Expert Solution

Explanation of Solution

Calculate current ratio if company purchased $50 million of inventory by debiting inventory and crediting accounts payable.

If the company purchases $50 million of inventory, the current assets (inventory) and the current liabilities (accounts payable) both increase by $50 million. Thus, this transaction decreases the current ratio. The calculation is as given below:

Before:

$Current ratio=Current assetsCurrent liabilities=$276,873 $128,9561=2.15 times$

After:

$Current ratio=Current assetsCurrent liabilities=$276,873 +50$128,9561+50=1.83 times$

Calculate acid-test ratio if company purchased $50 million of inventory by debiting inventory and crediting accounts payable.

If the company purchases $50 million of inventory, the current liabilities increase by $50 million, but the quick assets remain same. Hence, this transaction decreases the acid-test ratio. The calculation is as given below:

Before:

$Acid-test ratio = (Cash+Short-term investments+Accounts receivable)Current liabilities=($117,608 +$26,414+$3,470)$128,956=1.14 times$

After:

$Acid-test ratio = (Cash+Short-term investments+Accounts receivable)Current liabilities=($117,608 +$26,414+$3,470)+50$128,956+50=1.10 times$

Conclusion

Therefore, both current and acid test ratio is decreased.

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Answer 4

Question

Chapter 8, Problem 8.3APFA

Requirement – 1

To determine

To calculate: The current ratio for the past two year, and discuss whether the current ratio improve or weaken in the most recent year.

Requirement – 1

Expert Solution

Explanation of Solution

Current ratio:

Current ratio is used to determine the relationship between current assets and current liabilities. Current ratio is determined by dividing current assets and current liabilities.

Formula:

$Current Ratio=Current assetsCurrent liabilities$

The current ratio of Company B for the past two year is as follows:

In 2012:

$Current ratio=Current assetsCurrent liabilities=$320,127$109,831 =2.91 times$

In 2013:

$Current ratio=Current assetsCurrent liabilities=$276,873 $128,9561=2.15 times$

Conclusion

Therefore, the current ratio in the most recent year (2013) is weakened.

Requirement – 2

To determine

To calculate: The acid test ratio for the past two year, and discuss whether the acid test ratio improve or weaken in the most recent year.

Requirement – 2

Expert Solution

Explanation of Solution

Acid-test Ratio:

It is a ratio used to determine a company’s ability to pay back its current liabilities by liquid assets that are current assets except inventory and prepaid expenses.

Formula:

$Acid-test Ratio=Cash+Accounts Receivable+Short-term InvestmentsCurrent Liabilities$

The acid test ratio of Company B for the past two year is as follows:

In 2012:

$Acid-test ratio = (Cash+Short-term investments+Accounts receivable)Current liabilities=($ 166,511 +$29,998+$4,584 )$109,831=1.83 times$

In 2013:

$Acid-test ratio = (Cash+Short-term investments+Accounts receivable)Current liabilities=($117,608 +$26,414+$3,470)$128,956=1.14 times$

Conclusion

Therefore, the acid test ratio in the most recent year (2013) is weakened.

Requirement – 3

To determine

The manner in which the current ratio and acid test ratio will change, if Company B purchased $50 million of inventory by debiting inventory and crediting accounts payable.

Requirement – 3

Expert Solution

Explanation of Solution

Calculate current ratio if company purchased $50 million of inventory by debiting inventory and crediting accounts payable.

If the company purchases $50 million of inventory, the current assets (inventory) and the current liabilities (accounts payable) both increase by $50 million. Thus, this transaction decreases the current ratio. The calculation is as given below:

Before:

$Current ratio=Current assetsCurrent liabilities=$276,873 $128,9561=2.15 times$

After:

$Current ratio=Current assetsCurrent liabilities=$276,873 +50$128,9561+50=1.83 times$

Calculate acid-test ratio if company purchased $50 million of inventory by debiting inventory and crediting accounts payable.

If the company purchases $50 million of inventory, the current liabilities increase by $50 million, but the quick assets remain same. Hence, this transaction decreases the acid-test ratio. The calculation is as given below:

Before:

$Acid-test ratio = (Cash+Short-term investments+Accounts receivable)Current liabilities=($117,608 +$26,414+$3,470)$128,956=1.14 times$

After:

$Acid-test ratio = (Cash+Short-term investments+Accounts receivable)Current liabilities=($117,608 +$26,414+$3,470)+50$128,956+50=1.10 times$

Conclusion

Therefore, both current and acid test ratio is decreased.

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Answer 5

Chapter 8, Problem 8.3APFA

Requirement – 1

To determine

To calculate: The current ratio for the past two year, and discuss whether the current ratio improve or weaken in the most recent year.

Requirement – 1

Expert Solution

Explanation of Solution

Current ratio:

Current ratio is used to determine the relationship between current assets and current liabilities. Current ratio is determined by dividing current assets and current liabilities.

Formula:

$Current Ratio=Current assetsCurrent liabilities$

The current ratio of Company B for the past two year is as follows:

In 2012:

$Current ratio=Current assetsCurrent liabilities=$320,127$109,831 =2.91 times$

In 2013:

$Current ratio=Current assetsCurrent liabilities=$276,873 $128,9561=2.15 times$

Conclusion

Therefore, the current ratio in the most recent year (2013) is weakened.

Requirement – 2

To determine

To calculate: The acid test ratio for the past two year, and discuss whether the acid test ratio improve or weaken in the most recent year.

Requirement – 2

Expert Solution

Explanation of Solution

Acid-test Ratio:

It is a ratio used to determine a company’s ability to pay back its current liabilities by liquid assets that are current assets except inventory and prepaid expenses.

Formula:

$Acid-test Ratio=Cash+Accounts Receivable+Short-term InvestmentsCurrent Liabilities$

The acid test ratio of Company B for the past two year is as follows:

In 2012:

$Acid-test ratio = (Cash+Short-term investments+Accounts receivable)Current liabilities=($ 166,511 +$29,998+$4,584 )$109,831=1.83 times$

In 2013:

$Acid-test ratio = (Cash+Short-term investments+Accounts receivable)Current liabilities=($117,608 +$26,414+$3,470)$128,956=1.14 times$

Conclusion

Therefore, the acid test ratio in the most recent year (2013) is weakened.

Requirement – 3

To determine

The manner in which the current ratio and acid test ratio will change, if Company B purchased $50 million of inventory by debiting inventory and crediting accounts payable.

Requirement – 3

Expert Solution

Explanation of Solution

Calculate current ratio if company purchased $50 million of inventory by debiting inventory and crediting accounts payable.

If the company purchases $50 million of inventory, the current assets (inventory) and the current liabilities (accounts payable) both increase by $50 million. Thus, this transaction decreases the current ratio. The calculation is as given below:

Before:

$Current ratio=Current assetsCurrent liabilities=$276,873 $128,9561=2.15 times$

After:

$Current ratio=Current assetsCurrent liabilities=$276,873 +50$128,9561+50=1.83 times$

Calculate acid-test ratio if company purchased $50 million of inventory by debiting inventory and crediting accounts payable.

If the company purchases $50 million of inventory, the current liabilities increase by $50 million, but the quick assets remain same. Hence, this transaction decreases the acid-test ratio. The calculation is as given below:

Before:

$Acid-test ratio = (Cash+Short-term investments+Accounts receivable)Current liabilities=($117,608 +$26,414+$3,470)$128,956=1.14 times$

After:

$Acid-test ratio = (Cash+Short-term investments+Accounts receivable)Current liabilities=($117,608 +$26,414+$3,470)+50$128,956+50=1.10 times$

Conclusion

Therefore, both current and acid test ratio is decreased.

Answer 6

Chapter 8, Problem 8.3APFA

Requirement – 1

To determine

To calculate: The current ratio for the past two year, and discuss whether the current ratio improve or weaken in the most recent year.

Requirement – 1

Expert Solution

Explanation of Solution

Current ratio:

Current ratio is used to determine the relationship between current assets and current liabilities. Current ratio is determined by dividing current assets and current liabilities.

Formula:

$Current Ratio=Current assetsCurrent liabilities$

The current ratio of Company B for the past two year is as follows:

In 2012:

$Current ratio=Current assetsCurrent liabilities=$320,127$109,831 =2.91 times$

In 2013:

$Current ratio=Current assetsCurrent liabilities=$276,873 $128,9561=2.15 times$

Conclusion

Therefore, the current ratio in the most recent year (2013) is weakened.

Answer 7

Chapter 8, Problem 8.3APFA

Requirement – 1

To determine

To calculate: The current ratio for the past two year, and discuss whether the current ratio improve or weaken in the most recent year.

Answer 8

Requirement – 1

Expert Solution

Explanation of Solution

Current ratio:

Current ratio is used to determine the relationship between current assets and current liabilities. Current ratio is determined by dividing current assets and current liabilities.

Formula:

$Current Ratio=Current assetsCurrent liabilities$

The current ratio of Company B for the past two year is as follows:

In 2012:

$Current ratio=Current assetsCurrent liabilities=$320,127$109,831 =2.91 times$

In 2013:

$Current ratio=Current assetsCurrent liabilities=$276,873 $128,9561=2.15 times$

Answer 9

Requirement – 1

Expert Solution

Answer 10

Requirement – 1

Expert Solution

Answer 11

Expert Solution

Answer 12

Conclusion

Therefore, the current ratio in the most recent year (2013) is weakened.

Answer 13

Requirement – 2

To determine

To calculate: The acid test ratio for the past two year, and discuss whether the acid test ratio improve or weaken in the most recent year.

Requirement – 2

Expert Solution

Explanation of Solution

Acid-test Ratio:

It is a ratio used to determine a company’s ability to pay back its current liabilities by liquid assets that are current assets except inventory and prepaid expenses.

Formula:

$Acid-test Ratio=Cash+Accounts Receivable+Short-term InvestmentsCurrent Liabilities$

The acid test ratio of Company B for the past two year is as follows:

In 2012:

$Acid-test ratio = (Cash+Short-term investments+Accounts receivable)Current liabilities=($ 166,511 +$29,998+$4,584 )$109,831=1.83 times$

In 2013:

$Acid-test ratio = (Cash+Short-term investments+Accounts receivable)Current liabilities=($117,608 +$26,414+$3,470)$128,956=1.14 times$

Conclusion

Therefore, the acid test ratio in the most recent year (2013) is weakened.

Answer 14

Requirement – 2

To determine

To calculate: The acid test ratio for the past two year, and discuss whether the acid test ratio improve or weaken in the most recent year.

Answer 15

Requirement – 2

Expert Solution

Explanation of Solution

Acid-test Ratio:

It is a ratio used to determine a company’s ability to pay back its current liabilities by liquid assets that are current assets except inventory and prepaid expenses.

Formula:

$Acid-test Ratio=Cash+Accounts Receivable+Short-term InvestmentsCurrent Liabilities$

The acid test ratio of Company B for the past two year is as follows:

In 2012:

$Acid-test ratio = (Cash+Short-term investments+Accounts receivable)Current liabilities=($ 166,511 +$29,998+$4,584 )$109,831=1.83 times$

In 2013:

$Acid-test ratio = (Cash+Short-term investments+Accounts receivable)Current liabilities=($117,608 +$26,414+$3,470)$128,956=1.14 times$

Answer 16

Requirement – 2

Expert Solution

Answer 17

Requirement – 2

Expert Solution

Answer 18

Expert Solution

Answer 19

Conclusion

Therefore, the acid test ratio in the most recent year (2013) is weakened.

Answer 20

Requirement – 3

To determine

The manner in which the current ratio and acid test ratio will change, if Company B purchased $50 million of inventory by debiting inventory and crediting accounts payable.

Requirement – 3

Expert Solution

Explanation of Solution

Calculate current ratio if company purchased $50 million of inventory by debiting inventory and crediting accounts payable.

If the company purchases $50 million of inventory, the current assets (inventory) and the current liabilities (accounts payable) both increase by $50 million. Thus, this transaction decreases the current ratio. The calculation is as given below:

Before:

$Current ratio=Current assetsCurrent liabilities=$276,873 $128,9561=2.15 times$

After:

$Current ratio=Current assetsCurrent liabilities=$276,873 +50$128,9561+50=1.83 times$

Calculate acid-test ratio if company purchased $50 million of inventory by debiting inventory and crediting accounts payable.

If the company purchases $50 million of inventory, the current liabilities increase by $50 million, but the quick assets remain same. Hence, this transaction decreases the acid-test ratio. The calculation is as given below:

Before:

$Acid-test ratio = (Cash+Short-term investments+Accounts receivable)Current liabilities=($117,608 +$26,414+$3,470)$128,956=1.14 times$

After:

$Acid-test ratio = (Cash+Short-term investments+Accounts receivable)Current liabilities=($117,608 +$26,414+$3,470)+50$128,956+50=1.10 times$

Conclusion

Therefore, both current and acid test ratio is decreased.

Answer 21

Requirement – 3

To determine

The manner in which the current ratio and acid test ratio will change, if Company B purchased $50 million of inventory by debiting inventory and crediting accounts payable.

Answer 22

Requirement – 3

Expert Solution

Explanation of Solution

Calculate current ratio if company purchased $50 million of inventory by debiting inventory and crediting accounts payable.

If the company purchases $50 million of inventory, the current assets (inventory) and the current liabilities (accounts payable) both increase by $50 million. Thus, this transaction decreases the current ratio. The calculation is as given below:

Before:

$Current ratio=Current assetsCurrent liabilities=$276,873 $128,9561=2.15 times$

After:

$Current ratio=Current assetsCurrent liabilities=$276,873 +50$128,9561+50=1.83 times$

Calculate acid-test ratio if company purchased $50 million of inventory by debiting inventory and crediting accounts payable.

If the company purchases $50 million of inventory, the current liabilities increase by $50 million, but the quick assets remain same. Hence, this transaction decreases the acid-test ratio. The calculation is as given below:

Before:

$Acid-test ratio = (Cash+Short-term investments+Accounts receivable)Current liabilities=($117,608 +$26,414+$3,470)$128,956=1.14 times$

After:

$Acid-test ratio = (Cash+Short-term investments+Accounts receivable)Current liabilities=($117,608 +$26,414+$3,470)+50$128,956+50=1.10 times$

Answer 23

Requirement – 3

Expert Solution

Answer 24

Requirement – 3

Expert Solution

Answer 25

Expert Solution

Answer 26

Conclusion

Therefore, both current and acid test ratio is decreased.

Answer 27

Ch. 8 - Prob. 1RQ Ch. 8 - Prob. 2RQ Ch. 8 - Prob. 3RQ Ch. 8 - Provide examples of current liabilities in the...Ch. 8 - Prob. 5RQ Ch. 8 - Prob. 6RQ Ch. 8 - How does commercial paper differ from a normal...Ch. 8 - Prob. 8RQ Ch. 8 - Prob. 9RQ Ch. 8 - Prob. 10RQ

The current ratio for the past two year, and discuss whether the current ratio improve or weaken in the most recent year.

To calculate: The current ratio for the past two year, and discuss whether the current ratio improve or weaken in the most recent year.

Explanation of Solution

To calculate: The acid test ratio for the past two year, and discuss whether the acid test ratio improve or weaken in the most recent year.

Explanation of Solution

The manner in which the current ratio and acid test ratio will change, if Company B purchased $50 million of inventory by debiting inventory and crediting accounts payable.

Explanation of Solution

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Chapter 8 Solutions