Using the balance sheet below, complete the analysis. Post-closing ACME Firework

Question

Using the balance sheet below, complete the analysis.

Post-closing ACME Fireworks Classified Balance Sheet January 31, 2018 Assets Liabilities Current Assets Current Liabilities $ 23,000 Accounts payable Cash Accounts receivable Allowance for uncollectible accounts Inventory $ 86,000 13,500 275 5,500 194,000 Income taxes payable (11,920) Interest payable 14,200Deferred revenue 105,275 55,000 Total Current Liabilities otes payable Total Current Assets 219,280 Total Liabilities 160,275 Noncurrent Assets Stockholders' Equity Land Equipment Accumulated depreciation 51,000Common stock 17,500 Retained earnings (2,575) 40,000 84,930 Total Stockholders' Equity 124,930 Total Assets S 285,205 Total Liabilities & Stockholders' Equity $ 285,205 Income Statement Analysis

Explanation / Answer

(a) The current ratio is = Current Assets / current Liabilities = 219,280 / 105,275 = 2.08:1

Since the industry average is 1.8, the company is more liquid as compared to the industry.

(b) The acid - test ratio is = Current Assets - Inventory / Current Liabilities = 219,280 - 14,200 / 105,275 = 205,080 / 105,275 = 1.94:1

Since the industry average is 1.5, the company is less likely to have difficulty paying its currently maturing debts.

(c) If the notes payable were due on April 1, 2018 instead of April 1, 2019, then such notes payable become a current liability (maturing in less than 1 year) ,so the revised current ratio will be: 219,280 / (105,275 + 55,000) = 219,280 / 160,275 = 1.36:1

The revised ratio would decrease compared to that in (a)

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