A firm’s balance sheets for the last two years are as follows (refer to image): Sales in 20X1 were $250,000. Sales in 20X2 were $250,000. a. Based solely on the current ratio and the quick ratio, has the firm’s liquidity position deteriorated or improved? b. Without doing a calculation, has days sales outstanding (receivables turnover) improved? How do you know? c. Without doing a calculation, has inventory turnover deteriorated? How do you know?
A firm’s balance sheets for the last two years are as follows (refer to image): Sales in 20X1 were $250,000. Sales in 20X2 were $250,000. a. Based solely on the current ratio and the quick ratio, has the firm’s liquidity position deteriorated or improved? b. Without doing a calculation, has days sales outstanding (receivables turnover) improved? How do you know? c. Without doing a calculation, has inventory turnover deteriorated? How do you know?
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
Chapter12: Fainancial Statement Analysis
Section: Chapter Questions
Problem 18MCQ
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A firm’s balance sheets for the last two years are as follows (refer to image):
Sales in 20X1 were $250,000. Sales in 20X2 were $250,000.
a. Based solely on the current ratio and the quick ratio, has the firm’s liquidity position deteriorated or improved?
b. Without doing a calculation, has days sales outstanding (receivables turnover) improved? How do you know?
c. Without doing a calculation, has inventory turnover deteriorated? How do you know?
d. If the firm earned $5,000 during 2012, what proportion of those earnings
were distributed?
![YEAR 20X1
Assets
Liabilities and Equity
Cash
$19,000
Accounts payable
$12,000
Accruals
10,000
Accounts receivable
11,000
Current bank note
10,000
Long-term debt
Inventory
Plant and equipment
20,000
32,000
50,000
Common stock
14,000
Retained earnings
22,000
$100,000
$100,000
YEAR 20X2
Assets
Liabilities and Equity
Cash
$2,000
Accounts payable
$12,000
Accruals
10,000
Accounts receivable
28,000
Current bank note
30,000
Inventory
20,000
Long-term debt
10,000
Plant and equipment
50,000
Common stock
14,000
Retained earnings
24,000
$100,000
$100,000](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F97ad3051-e3e7-4e2b-9781-5afd6411603c%2Fedc826bc-b448-4731-b7a7-25a01324b156%2F5q1k8k_processed.png&w=3840&q=75)
Transcribed Image Text:YEAR 20X1
Assets
Liabilities and Equity
Cash
$19,000
Accounts payable
$12,000
Accruals
10,000
Accounts receivable
11,000
Current bank note
10,000
Long-term debt
Inventory
Plant and equipment
20,000
32,000
50,000
Common stock
14,000
Retained earnings
22,000
$100,000
$100,000
YEAR 20X2
Assets
Liabilities and Equity
Cash
$2,000
Accounts payable
$12,000
Accruals
10,000
Accounts receivable
28,000
Current bank note
30,000
Inventory
20,000
Long-term debt
10,000
Plant and equipment
50,000
Common stock
14,000
Retained earnings
24,000
$100,000
$100,000
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