Mixon Company's year-end balance sheets show the following: Cash Accounts receivable, net Merchandise inventory Prepaid expenses Plant assets, net Total assets Accounts payable Long-term notes payable secured. by mortgages on plant assets Common stock, $10 par value Retained earnings Total liabilities and equity 2006 $ 30,800 88,500 111,500 9,700 277,500 $518,000 $128,900 97,500 162,500 129,100 $518,000 2005 $ 35,625 62,500 82,500 9,375 255,000 $445,000 $ 75,250 2004 $36,800 49,200 53,000 4,000 229,500 $372,500 $ 49,250 102,500 82,500 162,500 162,500 104,750 78,250 $445,000 $372,500 Required: Compare the year-end short-term liquidity position of this company at the end of 2006, 2005, and 2004 by computing the: (a) current ratio and (b) acid-test ratio. Comment on the ratio results. EXERCISE 1-3 Evaluating Short-Term Liquidity

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Use information attached 1-3 and 1-5 to answer the following 

For the years ended December 31, 2006 and 2005, assume all sales are on credit and then compute the following: (a) collection period, (b) accounts receivable turnover, (c) inventory turnover, and (d ) days’ sales in inventory. Comment on the changes in the ratios from 2005 to 2006.

Mixon Company's year-end balance sheets show the following:
Cash
Accounts receivable, net
Merchandise inventory
Prepaid expenses
Plant assets, net
Total assets
Accounts payable ..
Long-term notes payable secured
by mortgages on plant assets
Common stock, $10 par value
Retained earnings
Total liabilities and equity
2006
$ 30,800
88,500
111,500
9,700
277,500
$518,000
$128,900
97,500
162,500
129,100
$518,000
2005
2004
$ 35,625
$36,800
62,500
49,200
82,500
53,000
9,375
4,000
255,000
229,500
$445,000
$372,500
$ 75,250 $ 49,250
102,500
82,500
162,500
162,500
104,750
78,250
$445,000 $372,500
Required:
Compare the year-end short-term liquidity position of this company at the end of 2006, 2005,
and 2004 by computing the: (a) current ratio and (b) acid-test ratio. Comment on the ratio
results.
EXERCISE 1-3
Evaluating Short-Term
Liquidity
Transcribed Image Text:Mixon Company's year-end balance sheets show the following: Cash Accounts receivable, net Merchandise inventory Prepaid expenses Plant assets, net Total assets Accounts payable .. Long-term notes payable secured by mortgages on plant assets Common stock, $10 par value Retained earnings Total liabilities and equity 2006 $ 30,800 88,500 111,500 9,700 277,500 $518,000 $128,900 97,500 162,500 129,100 $518,000 2005 2004 $ 35,625 $36,800 62,500 49,200 82,500 53,000 9,375 4,000 255,000 229,500 $445,000 $372,500 $ 75,250 $ 49,250 102,500 82,500 162,500 162,500 104,750 78,250 $445,000 $372,500 Required: Compare the year-end short-term liquidity position of this company at the end of 2006, 2005, and 2004 by computing the: (a) current ratio and (b) acid-test ratio. Comment on the ratio results. EXERCISE 1-3 Evaluating Short-Term Liquidity
EXERCISE 1-5
Evaluating Short-Term
Liquidity
Refer to the information in Exercise 1-3 about Mixon Company. The company's income state-
ments for the years ended December 31, 2006 and 2005 show the following:
2006
Sales
Cost of goods sold
Other operating expenses
Interest expense
Income taxes
Total costs and expenses
Net income
Earnings per share
$410,225
208,550
11,100
8,525
$672,500
(638,400)
$ 34,100
$ 2.10
$344,500
133,980
12,300
7,845
2005
$530,000
(498,625)
$ 31,375
$
1.93
Required:
For the years ended December 31, 2006 and 2005, assume all sales are on credit and then compute
the following: (a) collection period, (b) accounts receivable turnover, (c) inventory turnover, and
(d) days' sales in inventory. Comment on the changes in the ratios from 2005 to 2006.
Transcribed Image Text:EXERCISE 1-5 Evaluating Short-Term Liquidity Refer to the information in Exercise 1-3 about Mixon Company. The company's income state- ments for the years ended December 31, 2006 and 2005 show the following: 2006 Sales Cost of goods sold Other operating expenses Interest expense Income taxes Total costs and expenses Net income Earnings per share $410,225 208,550 11,100 8,525 $672,500 (638,400) $ 34,100 $ 2.10 $344,500 133,980 12,300 7,845 2005 $530,000 (498,625) $ 31,375 $ 1.93 Required: For the years ended December 31, 2006 and 2005, assume all sales are on credit and then compute the following: (a) collection period, (b) accounts receivable turnover, (c) inventory turnover, and (d) days' sales in inventory. Comment on the changes in the ratios from 2005 to 2006.
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