On January 1, 2024, the general ledger of ACME Fireworks includes the following account balances: AccountsDebitCreditCash$25,700 Accounts Receivable47,400 Allowance for Uncollectible Accounts $4,800Inventory20,600 Land52,000 Equipment18,000 Accumulated Depreciation 2,100Accounts Payable 29,100Notes Payable (6%, due April 1, 2025) 56,000Common Stock 41,000Retained Earnings 30,700Totals$163,700$163,700 During January 2024, the following transactions occur: January 2Sold gift cards totaling $9,200. The cards are redeemable for merchandise within one year of the purchase date.January 6Purchase additional inventory on account, $153,000. ACME uses the perpetual inventory system.January 15Firework sales for the first half of the month total $141,000. All of these sales are on account. The cost of the units sold is $76,800.January 23Receive $126,000 from customers on accounts receivable.January 25Pay $96,000 to inventory suppliers on accounts payable.January 28Write off accounts receivable as uncollectible, $5,400.January 30Firework sales for the second half of the month total $149,000. Sales include $13,000 for cash and $136,000 on account. The cost of the units sold is $82,500.January 31Pay cash for monthly salaries, $52,600. 7. Analyze the following for ACME Fireworks Requirement 1:a-1. Calculate the current ratio at the end of January.a-2. If the average current ratio for the industry is 1.80, is ACME Fireworks more or less liquid than the industry average?Requirement 2:b-1. Calculate the acid-test ratio at the end of January.b-2. If the average acid-test ratio for the industry is 1.50, is ACME Fireworks more or less likely to have difficulty paying its currently maturing debts (compared to the industry average)?Requirement 3:c-1. Assume the notes payable were due on April 1, 2024, rather than April 1, 2025. Calculate the revised current ratio at the end of January.c-2. Indicate whether the revised ratio would increase, decrease, or remain unchanged. Calculate the current ratio at the end of January.Current RatioChoose Numerator ÷ Choose Denominator =+Current RatioCurrent Ratio0 Calculate the acid-test ratio at the end of January.Choose Numerator÷+Acid-Test RatioChoose DenominatorII=Acid-Test RatioAcid-Test Ratio0

Requirement 1:a-1. The current ratio measures a company's ability to cover its short-term…

Answered: Calculate the current ratio at the end…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

On January 1, 2024, the general ledger of ACME Fireworks includes the following account balances:

Accounts	Debit	Credit
Cash	$25,700
Accounts Receivable	47,400
Allowance for Uncollectible Accounts		$4,800
Inventory	20,600
Land	52,000
Equipment	18,000
Accumulated Depreciation		2,100
Accounts Payable		29,100
Notes Payable (6%, due April 1, 2025)		56,000
Common Stock		41,000
Retained Earnings		30,700
Totals	$163,700	$163,700

During January 2024, the following transactions occur:

January 2	Sold gift cards totaling $9,200. The cards are redeemable for merchandise within one year of the purchase date.
January 6	Purchase additional inventory on account, $153,000. ACME uses the perpetual inventory system.
January 15	Firework sales for the first half of the month total $141,000. All of these sales are on account. The cost of the units sold is $76,800.
January 23	Receive $126,000 from customers on accounts receivable.
January 25	Pay $96,000 to inventory suppliers on accounts payable.
January 28	Write off accounts receivable as uncollectible, $5,400.
January 30	Firework sales for the second half of the month total $149,000. Sales include $13,000 for cash and $136,000 on account. The cost of the units sold is $82,500.
January 31	Pay cash for monthly salaries, $52,600.

7. Analyze the following for ACME Fireworks

Requirement 1:
a-1. Calculate the current ratio at the end of January.
a-2. If the average current ratio for the industry is 1.80, is ACME Fireworks more or less liquid than the industry average?

Requirement 2:
b-1. Calculate the acid-test ratio at the end of January.
b-2. If the average acid-test ratio for the industry is 1.50, is ACME Fireworks more or less likely to have difficulty paying its currently maturing debts (compared to the industry average)?

Requirement 3:
c-1. Assume the notes payable were due on April 1, 2024, rather than April 1, 2025. Calculate the revised current ratio at the end of January.
c-2. Indicate whether the revised ratio would increase, decrease, or remain unchanged.

Calculate the current ratio at the end of January.
Current Ratio
Choose Numerator ÷ Choose Denominator =
+
Current Ratio
Current Ratio
0

Calculate the acid-test ratio at the end of January.
Choose Numerator
÷
+
Acid-Test Ratio
Choose Denominator
II
=
Acid-Test Ratio
Acid-Test Ratio
0

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Calculate the current ratio at the end of January. Current Ratio Choose Numerator ÷ Choose Denominator = + Current Ratio Current Ratio 0 Calculate the acid-test ratio at the end of January. Choose Numerator ÷ + Acid-Test Ratio Choose Denominator II = Acid-Test Ratio Acid-Test Ratio 0