reported the folliowing items on December 31, 2016 (last year\'s amounts also gi

Question

reported the folliowing items on December 31, 2016 (last year's amounts also given as needed) EEB (Click the icon to view the financial 1. Compute Algonquin Equipment's (a) quick ratio (b) current ratio, and (c) accounts receivable turnover for 2016 2. Evaluate each ratio value as strong or weak. Assume Algonquin Equipment sells on terms of net 30 Requirement 1a. Compute Algonquin Equipment's quick ratio for 2016. Select the formula, then enter the amounts to calculate the ratio. (Round your final answer to two decimal places, X.XX. Abbreviation used: ST invest short-term investment s Quick ratio

Explanation / Answer

1) Current Assets= Cash 24000 + inventory 20000 + AR 33000 + short term investments 12000 + other current assets 5000=94000 Current Liabilities = AP 49000 + Other current liabilities 13500 = 62500 Average AR = (33000 + 21000)/2 = $27000 a) Quick Ratio Current assets - Inventory / current liabilities 94000 - 20000 / 62500 = 1.184 b) Current Ratio Current assets/ current liabilities 94000 / 62500= 1.504 c) Accounts receivable turnover Revenues / Average AR 290000 / 27000 = 10.74 2) evaluation of ratios : a) Strong, The company quick assets are well capable to cover the payment of the Current Liabilities. b) Strong, The company is possessing a good current ratio, which covers the payment of current liabilities. c) weak, AR turnover shows that company is not following its net 30 credit policy seriously as ratio is below 12

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