Financial & Managerial Accounting
14th Edition
ISBN: 9781337119207
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Videos
Question
Chapter 10, Problem 4ADM
A.
To determine
Ratio analysis
It is the financial analysis tool for measuring the profitability, liquidity, capability and overall performance of a company.
Following are the two measures of liquidity:
- 1.
Current ratio : Current ratio is used to determine the relationship between current assets and current liabilities. The ideal current ratio is 2:1. - 2. Quick ratio: Quick ratio measures the immediate debt paying capacity of a business, which can be measured by dividing quick assets by the current liabilities. Quick assets represent cash, readily marketable securities, and accounts receivable.
- 3.
Working capital : Total current assets minus total current liabilities are the working capital of a company.
To explain: The representation of “gift cards”, which is listed as current liabilities.
B.
To determine
To indicate: Whether the “credit card loans” can be considered as part of quick assets for Company C’s computation of the quick ratios.
C.
To determine
To compute: The current ratio for each company.
D.
To determine
To compute: The quick ratio for each company.
E.
To determine
To compare: The two companies results of current ratio and quick ratio.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
Current Position Analysis
Sherwood, Inc., the parent company of Tasty snack foods and Super beverages, had the following current assets and current liabilities at the end of two recent years:
Current Year(in millions)
Previous Year(in millions)
Cash and cash equivalents
$3,315
$3,531
Short-term investments, at cost
2,355
6,557
Accounts and notes receivable, net
7,485
6,726
Inventories
1,973
1,753
Prepaid expenses and other current assets
658
649
Short-term obligations
351
3,723
Accounts payable
8,419
8,287
a. Determine the (1) current ratio and (2) quick ratio for both years. Round to one decimal place.
Current Year
Previous Year
1. Current ratio
fill in the blank 1
fill in the blank 2
2. Quick ratio
fill in the blank 3
fill in the blank 4
b. The liquidity of Sherwood has
some over this time period. Both the current and quick ratios have
. Sherwood is a
company with
resources for meeting short-term…
Current Position Analysis: PepsiCo, Inc., the parent company of Frito-Lay snack foods and Pepsi beverages, had the following current assets and current liabilities at the end of two recent years:
Current Year (in millions)
Prior Year (in millions)
Cash and cash equivalents
$5,943
$3,943
Short-term investments, at cost
426
192
Accounts and notes receivable, net
6,323
4624
Inventories
3,372
2,618
Prepaid expenses and other current assets
1,505
1,194
Short-term obligations
4,898
8,292
Accounts payable
10,994
464
a. Determine the (1) current ratio and (2) quick ratio for both years. Round to one decimal place.
b. What conclusions can draw from these data?
Current Position Analysis
Sherwood, Inc., the parent company of Frito-Lay snack foods and Sherwood beverages, had the following current assets and current liabilities at the end of two recent years:
Current Year(in millions)
Previous Year(in millions)
Cash and cash equivalents
$3,599
$3,902
Short-term investments, at cost
2,556
7,247
Accounts and notes receivable, net
8,125
7,433
Inventories
2,142
2,142
Prepaid expenses and other current assets
714
792
Short-term obligations
286
3,032
Accounts payable
6,854
6,748
a. Determine the (1) current ratio and (2) quick ratio for both years. Round to one decimal place.
Chapter 10 Solutions
Financial & Managerial Accounting
Ch. 10 - Does a discounted note payable provide credit...Ch. 10 - Employees are subject to taxes withheld from their...Ch. 10 - Prob. 3DQCh. 10 - Prob. 4DQCh. 10 - Prob. 5DQCh. 10 - To match revenues and expenses properly, should...Ch. 10 - Prob. 7DQCh. 10 - Prob. 8DQCh. 10 - When should the liability associated with a...Ch. 10 - Prob. 10DQ
Ch. 10 - Proceeds from notes payable On January 26, Nyree...Ch. 10 - Prob. 10.2BECh. 10 - Prob. 10.3BECh. 10 - Journalize payroll tax The payroll register of...Ch. 10 - Prob. 10.5BECh. 10 - Journalizing installment notes On the first day of...Ch. 10 - Prob. 10.7BECh. 10 - Prob. 10.1EXCh. 10 - Entries for notes payable Bennett Enterprises...Ch. 10 - Evaluating alternative notes A borrower has two...Ch. 10 - Entries for notes payable A business issued a...Ch. 10 - Entries for discounted note payable A business...Ch. 10 - Prob. 10.6EXCh. 10 - Prob. 10.7EXCh. 10 - Calculate payroll An employee earns 44 per hour...Ch. 10 - Prob. 10.9EXCh. 10 - Prob. 10.10EXCh. 10 - Payroll tax entries According to a summary of the...Ch. 10 - Payroll entries The payroll register for D. Salah...Ch. 10 - Prob. 10.13EXCh. 10 - Prob. 10.14EXCh. 10 - Prob. 10.15EXCh. 10 - Accrued vacation pay A business provides its...Ch. 10 - Pension plan entries Yuri Co. operates a chain of...Ch. 10 - Prob. 10.18EXCh. 10 - Entries for installment note transactions On the...Ch. 10 - Entries for installment note transactions On...Ch. 10 - Prob. 10.21EXCh. 10 - Prob. 10.22EXCh. 10 - Prob. 10.23EXCh. 10 - Prob. 10.24EXCh. 10 - Liability transactions The following items were...Ch. 10 - Entries for payroll and payroll taxes The...Ch. 10 - Wage and tax statement data on employer FICA tax...Ch. 10 - Prob. 10.4APRCh. 10 - Payroll accounts and year-end entries The...Ch. 10 - Prob. 10.1BPRCh. 10 - Entries for payroll and payroll taxes The...Ch. 10 - Prob. 10.3BPRCh. 10 - Prob. 10.4BPRCh. 10 - Payroll accounts and year-end entries The...Ch. 10 - Prob. 3CPPCh. 10 - Continuing Company Analysis-Amazon: Short-term...Ch. 10 - Prob. 2ADMCh. 10 - Prob. 3ADMCh. 10 - Prob. 4ADMCh. 10 - Prob. 10.1TIFCh. 10 - Prob. 10.3TIF
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- PepsiCo, Inc. (PEP), the parent company of Frito-LayTM snack foods and Pepsi beverages, had the following current assets and current liabilities at the end of two recent years: Year 2(in millions) Year 1(in millions) Cash and cash equivalents $ 9,096 $ 6,134 Short-term investments, at cost 2,913 2,592 Accounts and notes receivable, net 6,437 6,651 Inventories 2,720 3,143 Prepaid expenses and other current assets 1,865 2,143 Short-term obligations (liabilities) 4,071 5,076 Accounts payable and other current liabilities 13,507 13,016 a. Determine the (1) current ratio and (2) quick ratio for both years. Round to one decimal place. Year 2 Year 1 Current ratio ???? ???? Quick ratio ???? ????arrow_forwardPepsiCo, Inc. (PEP), the parent company of Frito-LayTM snack foods and Pepsi beverages, had the following current assets and current liabilities at the end of two recent years: Year 2(in millions) Year 1(in millions) Cash and cash equivalents $ 9,096 $ 6,134 Short-term investments, at cost 2,913 2,592 Accounts and notes receivable, net 6,437 6,651 Inventories 2,720 3,143 Prepaid expenses and other current assets 1,865 2,143 Short-term obligations (liabilities) 4,071 5,076 Accounts payable and other current liabilities 13,507 13,016 a. Determine the (1) current ratio and (2) quick ratio for both years. Round to one decimal place. Year 2 Year 1 Current ratio fill in the blank 1 fill in the blank 2 Quick ratio fill in the blank 3 fill in the blank 4 b. What conclusion can be drawn from these data?arrow_forwardA. Solve each of the following problems. 1. Sioux Company had current assets amounting to P100,000. Noncurrent assets for the year totaled P76,000. How much is the company’s total assets? 2. Bjork Company’s total liabilities amounted to P10,000. Total equity had an ending balance of P20,000. How much is total assets? 3. Laoise Company had the following accounts at year end: Cash P250,000, Accounts Payable P70,000, Prepaid Expense P15,000. Compute for the company’s current assets. 4. Luna Company’s Accounts Receivable amounted to P500,000. Prepaid Expense and Unearned Income totaled P30,000 and P10,000 respectively. Cash balance amounted to P100,000 while Accounts Payable and Inventory totaled to P20,000 and P10,000 respectively. How much is the company’s current assets? Current liabilities? 5. Claes Company’s Total Liabilities and Equity amounted to P285,000. Total noncurrent assets ended at P85,000. Cash totaled P50,000. Inventory amounted to P100,000. Assuming the company had no…arrow_forward
- Current Position Analysis Sherwood, Inc., the parent company of Frito-Lay snack foods and Sherwood beverages, had the following current assets and current liabilities at the end of two recent years: Current Year(in millions) Previous Year(in millions) Cash and cash equivalents $2,419 $2,589 Short-term investments, at cost 1,718 4,809 Accounts and notes receivable, net 5,463 4,932 Inventories 2,250 2,400 Prepaid expenses and other current assets 750 888 Short-term obligations 240 2,548 Accounts payable 5,760 5,672 a. Determine the (1) current ratio and (2) quick ratio for both years. Round to one decimal place. Current Year Previous Year 1. Current ratio fill in the blank 1 fill in the blank 2 2. Quick ratio fill in the blank 3 fill in the blank 4 b. The liquidity of Sherwood has increased some over this time period. Both the current and quick ratios have increased . Sherwood is a strong company with ample resources…arrow_forwardepsiCo, Inc. (PEP), the parent company of Frito-Lay snack foods and Pepsi beverages, had the following current assets and current liabilities at the end of two recent years: Current Year(in millions) Previous Year(in millions) Cash and cash equivalents $21,243 $10,202 Short-term investments, at cost 8,540 5,297 Accounts and notes receivable, net 6,361 6,644 Inventories 2,814 2,801 Prepaid expenses and other current assets 1,602 1,863 Short-term obligations 6,613 3,718 Accounts payable 13,667 12,334 Determine the (1) current ratio and (2) quick ratio for both years. Round your answers to one decimal place. Current Year Previous Year 1. Current ratio 2. Quick ratioarrow_forwardCurrent Position Analysis Sherwood, Inc., the parent company of Frito-Lay snack foods and Sherwood beverages, had the following current assets and current liabilities at the end of two recent years: Current Year(in millions) Previous Year(in millions) Cash and cash equivalents $4,417 $4,604 Short-term investments, at cost 3,137 8,550 Accounts and notes receivable, net 9,972 8,770 Inventories 1,143 762 Prepaid expenses and other current assets 381 282 Short-term obligations 305 3,236 Accounts payable 7,315 7,204 a. Determine the (1) current ratio and (2) quick ratio for both years. Round to one decimal place. Current Year Previous Year 1. Current ratio fill in the blank 1 fill in the blank 2 2. Quick ratio fill in the blank 3 fill in the blank 4 b. The liquidity of Sherwood has some over this time period. Both the current and quick ratios have . Sherwood is a company with resources for meeting short-term…arrow_forward
- Current Position Analysis Sherwood, Inc., the parent company of Frito-Lay snack foods and Sherwood beverages, had the following current assets and current liabilities at the end of two recent years: Current Year(in millions) Previous Year(in millions) Cash and cash equivalents $2,463 $2,610 Short-term investments, at cost 1,749 4,847 Accounts and notes receivable, net 5,560 4,971 Inventories 1,571 1,396 Prepaid expenses and other current assets 523 516 Short-term obligations 279 2,964 Accounts payable 6,701 6,596 a. Determine the (1) current ratio and (2) quick ratio for both years. Round to one decimal place. Current Year Previous Year 1. Current ratio fill in the blank 1 fill in the blank 2 2. Quick ratio fill in the blank 3 fill in the blank 4arrow_forwardPepsiCo, Inc. (PEP), the parent company of Frito-Lay snack foods and Pepsi beverages, had the following current assets and current liabilities at the end of two recent years: Current Year(in millions) Previous Year(in millions) Cash and cash equivalents $25,551 $9,216 Short-term investments, at cost 7,238 4,835 Accounts and notes receivable, net 7,097 7,405 Inventories 2,641 2,635 Prepaid expenses and other current assets 1,647 1,805 Short-term obligations 7,425 3,820 Accounts payable 15,345 12,674 This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below. Open spreadsheet Determine the (1) current ratio and (2) quick ratio for both years. Round your answers to one decimal place. Current Year Previous Year 1. Current ratio fill in the blank 2 fill in the blank 3 2. Quick ratio fill in the blank 4…arrow_forwardRequired information Skip to question [The following information applies to the questions displayed below.] Comparative financial statements for Weaver Company follow: Weaver CompanyComparative Balance Sheetat December 31 This Year Last Year Assets Cash $ 25 $ 12 Accounts receivable 293 230 Inventory 152 194 Prepaid expenses 9 5 Total current assets 479 441 Property, plant, and equipment 510 432 Less accumulated depreciation (83 ) (71 ) Net property, plant, and equipment 427 361 Long-term investments 24 31 Total assets $ 930 $ 833 Liabilities and Stockholders' Equity Accounts payable $ 302 $ 225 Accrued liabilities 71 80 Income taxes payable 75 63 Total current liabilities 448 368 Bonds payable 200 171 Total liabilities 648 539 Common stock 162 200…arrow_forward
- Mixon Company’s year-end balance sheets show the following: EXERCISE 1–3 Evaluating Short-Term Liquidity 2006 Cash ............................ $ 30,800 Accountsreceivable,net ............. 88,500 Merchandiseinventory ............... 111,500 Prepaidexpenses ................... 9,700 Plantassets,net ................... 277,500 Totalassets ....................... $518,000 Accountspayable ................... $128,900 Long-term notes payable secured by mortgages on plant assets . . . . . . . 97,500 Commonstock,$10parvalue ......... 162,500 Retainedearnings .................. 129,100 Totalliabilitiesandequity ............ $518,000 2005 $ 35,625 62,500 82,500 9,375 255,000 $445,000 2004 $ 36,800 49,200 53,000 4,000 229,500 $372,500 $ 49,250 82,500 162,500 78,250 $372,500 $445,000 $ 75,250 102,500 162,500 104,750 49 Required: Compare the year-end short-term liquidity position of this company at the end of 2006, 2005, and 2004 by computing the: (a) current ratio…arrow_forwardCash Accounts receivable Inventories Total current assets Oriole Sports Equipment Company $ 687,800 1,844,500 1,320,700 $3,853,000 Liabilities and Equity Accounts payable Notes payable Total current liabilities $1,739,900 2,113,100 $3,853,000 Sales and Costs Net sales Cost of goods sold $9,901,700 $5,955,500 Calculate the firm’s days sales outstanding. (use 365 days for calculation. Round answer to 1 decimal place e.g 15.1) Days sales outstanding —— What is the firms days sales in inventory? Days payables outstanding? Operating cycle? How does it compare with the industry average of 75 days? Is the firm efficient or inefficient in managing it's receivable and inventory as its operating cycle exceeds, is at par with or deceeds the industry average. What is cash conversion days? How does it compare with the industry average of 42.1 days? The firm’s cash conversion cycle is on a deceeds, exceeds or par with the industry average.arrow_forwardQuestion Content Area The following information pertains to Diane Company. Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit. Assets Line Item Description Amount Cash and short-term investments $30,000 Accounts receivable (net) 20,000 Inventory 15,000 Property, plant, and equipment 185,000 Total assets $250,000 Liabilities and Stockholders’ Equity Line Item Description Amount Current liabilities $45,000 Long-term liabilities 70,000 Common stock 80,000 Retained earnings 55,000 Total liabilities and stockholders’ equity $250,000 Income Statement Line Item Description Amount Sales $85,000 Cost of goods sold (45,000) Gross profit $40,000 Operating expenses (15,000) Interest expense (5,000) Net income $20,000 Line Item Description Amount Number of shares of common stock outstanding 6,000 Market price per share of common stock $20 Total dividends…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Financial & Managerial AccountingAccountingISBN:9781337119207Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage Learning
Corporate Financial AccountingAccountingISBN:9781305653535Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage Learning
Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
Financial & Managerial Accounting
Accounting
ISBN:9781337119207
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Cengage Learning
Corporate Financial Accounting
Accounting
ISBN:9781305653535
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Cengage Learning
Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning
Financial ratio analysis; Author: The Finance Storyteller;https://www.youtube.com/watch?v=MTq7HuvoGck;License: Standard Youtube License