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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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Section
BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Current position analysis

The following data were taken from the balance sheet of Nilo Company at the end of two recent fiscal years:

  Current Year Previous Year
Current assets:    
Cash $ 414,000 $ 320,000
Marketable securities 496,800 336,000
Accounts and notes receivable (net) 619,200 464,000
Inventories 351,900 272.000
Prepaid expenses 188,100 208,000
Total current assets $2,070,000 $1,600,000
Current liabilities:    
Accounts and notes payable (short-term) $ 675,000 $ 600,000
Accrued liabilities 225,000 200,000
Total current liabilities $ 900,000 $ 800,000

a. Determine for each year (1) the working capital, (2) the current ratio, and (3) the quick ratio. Round ratios to one decimal place.

b. What conclusions can be drawn from these data as to the company’s ability to meet its currently maturing debts?

A .

To determine

Financial Ratios: Financial ratios are the metrics used to evaluate the capabilities, profitability, and overall performance of a company.

To compute: Current position analysis for current year and previous year.

Given info: Items of current asset and current liabilities

Explanation

Current ratio is used to determine the relationship between current assets and current liabilities. The ideal current ratio is 2:1.

Formula:

C

B .

To determine

To provide: Conclusion towards company’s ability to meet the currently maturing debt.

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