174.The following information is available for Flanders and its two main competitors in the industry, Sanders and Anders:
FlandersSandersAnders
Cash$9,800$10,500$26,500
Short-term investments6,4008,20012,500
Accounts receivable12,5008,50014,350
Merchandise inventory30,15040,00040,150
Prepaid expense9006,7502,450
Accounts payable19,40013,75026,800
Salaries payable1,2003,5006,250
Other current payables6001,2002,150
The industry standard for the current ratio is 1.8 and the industry standard for the acid-test ratio is 1.
Required:
1. Calculate the current ratio and acid-test ratio for each firm.
2. Rank the firms in decreasing order of liquidity.
3. Comment on Flanders' relative liquidity position.
175.The following information refers to Percy's Records and its competitors in the music store business.
Current RatioQuick ratio
Percy’s Records2.00.95
Jewel CDs1.51.00
Rudy’s Raps1.81.20
Marvin’s Jazz1.90.80
Industry Average2.01.00
Required:
176.A company reported the following year-end information:
Cash$52,000
Short-term investments12,000
Accounts receivable54,000
Inventory325,000
Prepaid expenses17,500
Accounts payable106,500
Other current payables25,000
Required:
1. Explain the purpose of the acid-test ratio.
2. Calculate the acid-test ratio for this company.
3. What does the acid-test ratio reveal about this company?