Refer to Simon Company’s balance sheets in Exercise 13-6. (1) Compute the current ratio for each of the three years. Did the current ratio improve or worsen over the three-year period? (2) Compute the acid-test ratio for each of the three years. Did the acid-test ratio improve or worsen over the three-year period? Round ratios to two decimals. At December 31Current Yr1 Yr Ago2 Yrs AgoAssetsCash. ....$ 31,800$ 35,625$ 37,800Accounts receivable, net .89,50062,50050,200Merchandise inventory. .112,50082,50054,000Prepaid expenses....10,7009,3755,000Plant assets, net.....278,500255,000230,500Total assets...$523,000$445,000$377,500Liabilities and EquityAccounts payable . . .$129,900$ 75,250$ 51,250Long-term notes payable secured bymortgages on plant assets98,500101,50083,500Common stock, $10 par value.163,500163,500163,500Retained earnings. . .131,100104,75079,250Total liabilities and equity. . .$523,000$445,000$377,500

Ratio analysis is a tool used by the companies to evaluate and compare the multiple financial aspects of the business.The table below shows the calculation of current and acid-test ratio for 3 years: Both the current and acid test ratio has improved over the three year period.

Answered: Refer to Simon Company’s balance sheets…

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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Refer to Simon Company’s balance sheets in Exercise 13-6. (1) Compute the current ratio for each of the three years. Did the current ratio improve or worsen over the three-year period? (2) Compute the acid-test ratio for each of the three years. Did the acid-test ratio improve or worsen over the three-year period? Round ratios to two decimals.

At December 31
Current Yr
1 Yr Ago
2 Yrs Ago
Assets
Cash. ....
$ 31,800
$ 35,625
$ 37,800
Accounts receivable, net .
89,500
62,500
50,200
Merchandise inventory. .
112,500
82,500
54,000
Prepaid expenses....
10,700
9,375
5,000
Plant assets, net.....
278,500
255,000
230,500
Total assets...
$523,000
$445,000
$377,500
Liabilities and Equity
Accounts payable . . .
$129,900
$ 75,250
$ 51,250
Long-term notes payable secured by
mortgages on plant assets
98,500
101,500
83,500
Common stock, $10 par value.
163,500
163,500
163,500
Retained earnings. . .
131,100
104,750
79,250
Total liabilities and equity. . .
$523,000
$445,000
$377,500

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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