Please calculate the current ratio and acid test from the balance sheet and inco
ID: 2391163 • Letter: P
Question
Please calculate the current ratio and acid test from the balance sheet and income statement below.
I am not sure what I am doing wrong here to calculate the current ratio and acid test ratio for 2017 and 2018. Do I need to include the current notes payable due this within the year as a current liability ?
Marin Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown, who owns 15% of the common stock, was one of the organizers of Marin and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, 2018, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two $34,920 notes, which are due on June 30, 2018, and September 30, 2018. Another note of $5,970 is due on March 31, 2019, but he expects no difficulty in paying this note on its due date. Brown explained that Marin’s cash flow problems are due primarily to the company’s desire to finance a $300,720 plant expansion over the next 2 fiscal years through internally generated funds.
The commercial loan officer of Topeka National Bank requested the following financial reports for the last 2 fiscal years.
INcome statement - Depreciation charges on the plant and equipment of $100,020 and $102,710 for fiscal years ended March 31, 2017 and 2018, respectively, are included in cost of goods sold.
Balance Sheet 2018 2017 Assets Cash 18,120 12,410 N/R 148,700 130,840 A/R 132,830 125,880 Inventories 104,150 50,010 PPE 1,440,600 1,429,490 Total assets 1,844,400 1,748,630 Liabilities and Stockholders Equity A/P 78,220 90,330 N/P 75,500 61,590 Accrued Liab 2,760 23,230 C/S 1,298,610 1,290,550 RE 389,310 282,930 Total Liab and SE 1,844,400 1,748,630 aCash dividends were paid at the rate of $1 per share in fiscal year 2017 and $2 per share in fiscal year 2018. Income Statement 2018 2017 Sales Revenue 2,992,720 2,693,360 COGS 1,514,810 1,418,870 Gross Margin 1,477,910 1,274,490 Operating Exp. 856,040 775,840 Income before 621,870 498,650 taxes Income taxes 248,748 199,460 Net Income 373,122 299,190Explanation / Answer
Solution:
Current ratio = Current assets / Current liabilties
Current Assets = Cash + N/R + A/r + Inventories
Current assets 2018 = $18,120 + $148,700 + $132,830 + $104,150 = $403,800
Current assets 2017 = $12,410 + $130,840 + $125,880 + $50,010 = $319,140
Current liabilities 2018 = A/P + N/P + Accrued liabilities = $78,220 + $75,500 + $2,760 = $156,480
Current liabilities 2017 = $90,330 + $61,590 + $23,230 = $175,150
Current ratio:
2018 = $403,800 / $156,480 = 2.58:1
2017 = $319,140 / $175,150 = 1.82:1
Acid test ratio = Quick assets / Current liabilities
Quick assets = Current assets - Inventories
Quick assets 2018 = $403,800 - $104,150 = $299,650
Quick Assets 2017 = $319,140 - $50,010 = $269,130
Acid test ratio 2018 = $299,650 / $156,480 = 1.91:1
Acid test ratio 2017 = $269,130 / $175,150 = 1.54:1