Based on the comparative income statement and balance sheet of Cowan Kitchen Cou

Question

Based on the comparative income statement and balance sheet of Cowan Kitchen Counters, Inc., that follow: Cowan Kitchen Counters, Inc. Comparative Income Statement For Years Ended December 31, 20-2 and 20-1 20-2 20-1 Net Sales (all on account) Cost of goods sold Gross proft Operating expenses Other expense (interest) Income tax expense Net income $2,580,900 1,866,100 $714,800 310,200 24,200 176,900 $203,500 $2,162,600 1,619,200 $543,400 220,100 24,200 109,900 $189,200 Cowan Kitchen Counters, Inc. Comparative Balance Sheet December 31, 20-2 and 20-1 20-2 20-1 Cash Government notes Accounts receivable (net) $257,400 $241,000 252,400 252,400 795,600 907,900

Explanation / Answer

a. Quick or acid-test ratio=(Cash+Accounts receivable+Short-term investments)/Current liabilities Quick or acid-test ratio=(257400+907900+252400)/707400=2 (Government notes are treated as short-term investment) b. Current ratio=Current assets/Current liabilities Current assets=Cash+Government notes+Accounts receivable+Merchandise inventory+Supplies and prepayments=257400+252400+907900+985600+141700=2545000 Current liabilities=707400 Current ratio=2545000/707400=3.60 c. Working capital=Current assets-Current liabilities Current assets=Cash+Government notes+Accounts receivable+Merchandise inventory+Supplies and prepayments=257400+252400+907900+985600+141700=2545000 Current liabilities=707400 Working capital=2545000-707400=1837600

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