Simon Company's year-end balance sheets follow. At December 31 Current Yr 1 Yr Ago 2 Yrs Ago Assets $ 25,494 73,888 91,962 8,459 236,656 $ 436,459 $ 29, 800 $ 30,737 52,676 69,608 7,901 216, 273 $ 376,258 $ 307,400 Cash Accounts receivable, net Merchandise inventory Prepaid expenses Plant assets, net 40,577 42,778 3,348 189,960 Total assets Liabilities and Equity Accounts payable Long-term notes payable secured by mortgages on plant assets Common stock, $10 par value Retained earnings $ 106,505 $ 64,223 $ 40,577 83,695 89,136 162,500 83,759 162,500 60,399 68,615 162,500 35,708 Total liabilities and equity $ 436,459 $ 376, 258 $ 307,400 (1-a) Compute the current ratio for each of the three years. (1-b) Did the current ratio improve or worsen over the three year period? (2-a) Compute the acid-test ratio for each of the three years. (2-b) Did the acid-test ratio improve or worsen over the three year period?
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
![Simon Company's year-end balance sheets follow.
At December 31
Current Yr
1 Yr Ago
2 Yrs Ago
Assets
$ 25,494
29,800 $
52,676
69,608
7,901
216,273
Cash
$
Accounts receivable, net
Merchandise inventory
Prepaid expenses
Plant assets, net
73,888
91,962
8,459
236,656
30,737
40,577
42,778
3,348
189,960
Total assets
$ 436,459
$ 376, 258 $ 307,400
Liabilities and Equity
$ 106,505
64, 223 $ 40,577
Accounts payable
Long-term notes payable secured by
mortgages on plant assets
Common stock, $10 par value
Retained earnings
$
83,695
68,615
162,500
35,708
$ 376, 258 $ 307,400
89,136
162,500
162,500
83,759
60,399
Total liabilities and equity
$ 436,459
(1-a) Compute the current ratio for each of the three years.
(1-b) Did the current ratio improve or worsen over the three year period?
(2-a) Compute the acid-test ratio for each of the three years.
(2-b) Did the acid-test ratio improve or worsen over the three year period?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6a02b260-ff6c-4d5e-84bc-57397ca3f648%2F49946b76-7fec-4257-a66b-0b01dbe6b9ea%2Fodf2ylf_processed.png&w=3840&q=75)
![Complete this question by entering your answers in the tabs below.
Required 1A
Required 1B
Required 2A
Required 2B
Compute the acid-test ratio for each of the three years.
Acid-test ratio
Choose Numerator:
I Choose Denominator:
Acid-Test Ratio
Cash
+ Short-term investments
+ Current receivables
I Current liabilities
Acid-test ratio
Current Yr:
0 to 1
1 Yr Ago:
o to 1
2 Yrs Ago:
0 to 1
< Required 1B
Required 2B >
+ + +
+ + +](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6a02b260-ff6c-4d5e-84bc-57397ca3f648%2F49946b76-7fec-4257-a66b-0b01dbe6b9ea%2Fggtm0i_processed.png&w=3840&q=75)
![](/static/compass_v2/shared-icons/check-mark.png)
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
![FINANCIAL ACCOUNTING](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Accounting](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
![Accounting Information Systems](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
![FINANCIAL ACCOUNTING](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Accounting](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
![Accounting Information Systems](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
![Horngren's Cost Accounting: A Managerial Emphasis…](https://www.bartleby.com/isbn_cover_images/9780134475585/9780134475585_smallCoverImage.gif)
![Intermediate Accounting](https://www.bartleby.com/isbn_cover_images/9781259722660/9781259722660_smallCoverImage.gif)
![Financial and Managerial Accounting](https://www.bartleby.com/isbn_cover_images/9781259726705/9781259726705_smallCoverImage.gif)