Chapter 12 Textbook Questions Solutions

Chapter 12 Textbook Questions Solutions - Chapter 12 Review...

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Chapter 12 Review Questions 12-18 a) Current Ratio Quick Ratio 2007 $1,270 / $770 = 1.65 ($1,270 - $750) / $770 = 0.67 2008 $1,620 / $910 = 1.78 ($1,620 - $1,020) / $910 = 0.66 2009 $2,010 / $1,060 = 1.9 ($2,010 - $1,390) / $1,060 = 0.58 2010 $2,500 / $1,270 = 1.97 ($2,500 - $1,910) / $1,270 = 0.46 b) The current ratio has shown an increasing trend over the four years and can be considered respectable as seen in Year 4. However, this four-year upward trend has been at the cost of stocking more inventories and this has resulted in a downward trend in the quick ratio, which has become 0.46 in Year 4. c) The quick ratio is likely a better indication of short-term liquidity since the upward trend in the current ratio can be attributed to increasing levels of inventory, which may be difficult to convert to cash quickly at their book values (historical cost). 12-19 a) Accounts receivable Turnover 2007: $1,634,200 / $181,200 = 9.02 2008: $1,788,600 / [($181,200 + $192,400) / 2] = 9.57 2009: $1,947,500 / [($192,400 + $186,000) / 2] = 10.29 b) Average number of days required to collect Accounts Receivable: 2007: 365 / 9.02 = 40 days 2008: 365 / 9.57 = 38 days 2009: 365 / 10.29 = 36 days c) Accounts receivable turnover is increasing each year, and collection seems to be occurring faster. To help understand these trends, information regarding changes in credit terms, the sales mix, or the types of customers would be helpful.
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12-24 a) Current liabilities are $664,892, using the current ratio to calculate the amount: Current ratio = Current assets / Current liabilities Current ratio x Current liabilities = Current assets
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Chapter 12 Textbook Questions Solutions - Chapter 12 Review...

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