Current Position Analysis The following items are reported on a company's balance sheet: Cash $415,400 Marketable securities 324,500 Accounts receivable (net) 168,700 Inventory 389,400 Accounts payable 649,000 Determine (a) the current ratio and (b) the quick ratio. Round to one decimal place.
Current Position Analysis The following items are reported on a company's balance sheet: Cash $415,400 Marketable securities 324,500 Accounts receivable (net) 168,700 Inventory 389,400 Accounts payable 649,000 Determine (a) the current ratio and (b) the quick ratio. Round to one decimal place.
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter16: Financial Statement Analysis
Section: Chapter Questions
Problem 4PB
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![**Current Position Analysis**
The following items are reported on a company's balance sheet:
- Cash: $415,400
- Marketable securities: $324,500
- Accounts receivable (net): $168,700
- Inventory: $389,400
- Accounts payable: $649,000
**Determine (a) the **current ratio** and (b) the **quick ratio**. Round to one decimal place.**
- a. **Current ratio:**
- [Input Box]
- b. **Quick ratio:**
- [Input Box]
---
**Explanation for Calculating Ratios:**
- **Current ratio** is a measure of a company’s ability to pay short-term obligations with short-term assets. It is calculated as:
\[
\text{Current ratio} = \frac{\text{Total Current Assets}}{\text{Total Current Liabilities}}
\]
Substituting the values from the balance sheet:
\[
\text{Total Current Assets} = \text{Cash} + \text{Marketable securities} + \text{Accounts receivable (net)} + \text{Inventory}
\]
\[
\text{Total Current Assets} = \$415,400 + \$324,500 + \$168,700 + \$389,400 = \$1,298,000
\]
\[
\text{Current ratio} = \frac{1,298,000}{649,000} \approx 2.0
\]
Therefore, the current ratio is approximately 2.0.
- **Quick ratio** is a more stringent measure of a company’s ability to pay short-term obligations without relying on the sale of inventory. It is calculated as:
\[
\text{Quick ratio} = \frac{\text{Cash} + \text{Marketable securities} + \text{Accounts receivable (net)}}{\text{Total Current Liabilities}}
\]
Substituting the values:
\[
\text{Quick Assets} = \text{Cash} + \text{Marketable securities} + \text{Accounts receivable (net)}
\]
\[
\text{Quick Assets} = \$415,400 + \$324,500 + \$168,700 = \$908,600
\]
\[
\text{Quick ratio} =](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F4e5a8746-5172-4f40-b353-4538d9b50312%2Fa2a808bf-c9e3-49df-bc6f-73cbbb313e11%2F7cq2du4_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**Current Position Analysis**
The following items are reported on a company's balance sheet:
- Cash: $415,400
- Marketable securities: $324,500
- Accounts receivable (net): $168,700
- Inventory: $389,400
- Accounts payable: $649,000
**Determine (a) the **current ratio** and (b) the **quick ratio**. Round to one decimal place.**
- a. **Current ratio:**
- [Input Box]
- b. **Quick ratio:**
- [Input Box]
---
**Explanation for Calculating Ratios:**
- **Current ratio** is a measure of a company’s ability to pay short-term obligations with short-term assets. It is calculated as:
\[
\text{Current ratio} = \frac{\text{Total Current Assets}}{\text{Total Current Liabilities}}
\]
Substituting the values from the balance sheet:
\[
\text{Total Current Assets} = \text{Cash} + \text{Marketable securities} + \text{Accounts receivable (net)} + \text{Inventory}
\]
\[
\text{Total Current Assets} = \$415,400 + \$324,500 + \$168,700 + \$389,400 = \$1,298,000
\]
\[
\text{Current ratio} = \frac{1,298,000}{649,000} \approx 2.0
\]
Therefore, the current ratio is approximately 2.0.
- **Quick ratio** is a more stringent measure of a company’s ability to pay short-term obligations without relying on the sale of inventory. It is calculated as:
\[
\text{Quick ratio} = \frac{\text{Cash} + \text{Marketable securities} + \text{Accounts receivable (net)}}{\text{Total Current Liabilities}}
\]
Substituting the values:
\[
\text{Quick Assets} = \text{Cash} + \text{Marketable securities} + \text{Accounts receivable (net)}
\]
\[
\text{Quick Assets} = \$415,400 + \$324,500 + \$168,700 = \$908,600
\]
\[
\text{Quick ratio} =
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