(Learning Objective 7: Evaluate liquidity using the quick [acid-test] ratio and days’sales in receivables) Northern Products reported the following amounts in its 2019 financialstatements. The 2018 amounts are given for comparison.2019 2018Current assets:Cash............................................ $ 9,500Short-term investments................ 7,000Accounts receivable..................... $70,100Less: Allowance foruncollectibles.......................$86,500(7,500) (5,500) 64,600Inventory..................................... 190,000Prepaid insurance ........................ 2,200Total current assets..................... 273,300Total current liabilities.................... 106,000Net sales (all on account) ................$ 9,50010,50079,000189,0002,200290,20099,0001,077,000 734,000Requirements1. Compute Northern’s quick (acid-test) ratio at the end of 2019. Round to two decimalplaces. How does the quick ratio compare with the industry average of 0.92?2. Compare days’ sales outstanding for 2019 with the company’s credit terms of net 30 days.
(Learning Objective 7: Evaluate liquidity using the quick [acid-test] ratio and days’
sales in receivables) Northern Products reported the following amounts in its 2019 financial
statements. The 2018 amounts are given for comparison.
2019 2018
Current assets:
Cash............................................ $ 9,500
Short-term investments................ 7,000
Accounts receivable..................... $70,100
Less: Allowance for
uncollectibles.......................
$86,500
(7,500) (5,500) 64,600
Inventory..................................... 190,000
Prepaid insurance ........................ 2,200
Total current assets..................... 273,300
Total current liabilities.................... 106,000
Net sales (all on account) ................
$ 9,500
10,500
79,000
189,000
2,200
290,200
99,000
1,077,000 734,000
Requirements
1. Compute Northern’s quick (acid-test) ratio at the end of 2019. Round to two decimal
places. How does the quick ratio compare with the industry average of 0.92?
2. Compare days’ sales outstanding for 2019 with the company’s credit terms of net 30 days.
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