12. West Highland Clothiers reported the following items at August 31, 2012 (amo
ID: 2455047 • Letter: 1
Question
12. West Highland Clothiers reported the following items at August 31, 2012 (amounts in thousands, with last year’s—2011—amounts also given as needed): Requirement R1. Compute West Highland’s (a) acid-test ratio and (b) days’ sales in average receivables for 2012. Evaluate each ratio value as strong or weak. West Highland sells on terms of net 30.
Accounts payable- $380
Cash-$250
Inventories
8-31-12- $260
8-31-11-$220
Net sales revenue-$2,555
Long-term assets-$360
long term liabilities-$80
Accounts receivable, net:
8-31-12-$20
8-31-11-$110
cost of goods sold-$1,160
short term investments-$170
Other current assets-$50
other current liabilities-$160
Explanation / Answer
Since the day's sales in receivable is 9.29 which is less than 30 days is favorable for the company at it has quick cash available in hand.
Acid test ratio = (Cash + Short Term investment +Net current receivables) / Total current liabilities Cash $ 250 Short term investment $ 170 Net current receivables $ 20 $ 440 Accounts payable $ 380 Other current liabilities $ 160 Total Current assets $ 540 Acid ratio = 440 / 540 0.81 Acid test ratio is week as the assets required to pay the current liabilites are lessRelated Questions
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