Top Sound International designs and sells high-end stereo equipment for auto and home use. Engineers notified management in December 2018 of a...
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Top Sound International designs and sells high-end stereo equipment for auto and home use. Engineers notified management in December 2018 of a circuit flaw in an amplifier that poses a potential fire hazard. Further investigation indicates that a product
recall is probable, estimated to cost the company $2.2 million. The fiscal year ends on December 31.
References
Section Break
Exercise 8-11 Analyze and record a contingent liability
(LO8-5)
4.
value:
Required information
0.71 points
Exercise 8-11 Part 1
Required:
1. Should this contingent liability be reported, disclosed in a note only, or neither?
Reported
O Disclosed in a note only
Neither
References
eBook & Resources
Worksheet
Difficulty: 2 Medium
Exercise 8-11 Part 1
Learning Objective: 08-05 Apply the appropriate
accounting treatment for contingencies.

Screen Shot 2019-10-14 at 8.19.27 PM.png

5.
value:
Required information
0.71 points
Exercise 8-11 Part 2
2. What loss, if any, should Top Sound report in its 2018 income statement? (Enter your answer in dollars, not in millions (i.e. 5.5 should be entered as 5,500,000).)
Loss to be reported
References
eBook & Resources
Worksheet
Difficulty: 2 Medium
Exercise 8-11 Part 2
Learning Objective: 08-05 Apply the appropriate
accounting treatment for contingencies.
6.
value:
Required information
0.71 points
Exercise 8-11 Part 3
3. What liability, if any, should Top Sound report in its 2018 balance sheet? (Enter your answer in dollars, not in millions (i.e. 5.5 should be entered as 5,500,000).)
Liability to be reported

Screen Shot 2019-10-14 at 8.19.51 PM.png

7
value:
Required information
0.71 points
Exercise 8-11 Part 4
4. What entry, if any, should be recorded? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in dollars, not in millions (i.e. 5.5 should be entered as 5,500,000).)
View transaction list
Journal entry worksheet
Record the contingent liability if needed.
Note: Enter debits before credits.
Transaction
General Journal
Debit
Credit
Record entry
Clear entry
View general journal
References
eBook & Resources
General Journal
Difficulty: 2 Medium
Exercise 8-11 Part 4
Learning Objective: 08-05 Apply the appropriate
accounting treatment for contingencies.

Screen Shot 2019-10-14 at 8.22.01 PM.png

8.
value:
0.71 points
Problem 8-7A Record contingencies (LO8-5)
The ink-jet printing division of Environmental Printing has grown tremendously in recent years. Assume the following transactions related to the ink-jet division occur during the year ended December 31, 2018.
1. Environmental Printing is being sued for $9.1 million by Addamax. Plaintiff alleges that the defendants formed an unlawful joint venture and drove it out of business. The case is expected to go to trial later this year. The likelihood of payment is
reasonably possible.
2. Environmental Printing is the plaintiff in an $7.1 million lawsuit filed against a competitor in the high-end color-printer market. Environmental Printing expects to win the case and be awarded between $4.6 and $7.1 million.
3. Environmental Printing recently became aware of a design flaw in one of its ink-jet printers. A product recall appears probable. Such an action would likely cost the company between $310,000 and $710,000.
Required:
Record any amounts as a result of each of these contingencies. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answer in dollars, not in millions (i.e., $5.5 million should
be entered as 5,500,000).)
View transaction list
Journal entry worksheet
2
3
Record the contingent liability if needed.
Note: Enter debits before credits.
Transaction
General Journa
Debit
Credit
Record entry
Clear entry
View general journal

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9.
value:
0.71 points
Problem 8-3A Record payroll (LO8-3)
Caribbean Tours' total payroll for the month of January was $460,000. The following withholdings, fringe benefits, and payroll taxes apply:
Federal and state income tax withheld
$ 46,000
Health insurance premiums paid by employer (payable to Blue Cross)
8,280
Contribution to retirement plan paid by employer (payable to Fidelity)
18,400
FICA tax rate (Social Security and Medicare)
7.65%
Federal and state unemployment tax rate
6.20 %
Assume that none of the withholdings or payroll taxes has been paid by the end of January (record them as payables), and no employee's cumulative wages exceed the relevant wage bases.
Required:
1. Record the employee salary expense, withholdings, and salaries payable.
2. Record the employer-provided fringe benefits.
3. Record the employer payroll taxes.
Record the necessary entry for the scenarios given above. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
View transaction list
Journal entry worksheet
2
3
Record the employee salary expense, withholdings, and salaries payable.
Note: Enter debits before credits.
Date
General Journal
Debit
Credit
January 31
Record entry
Clear entry
View general journal

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10.
value:
0.71 points
Problem 8-6A Record deferred revenues and sales taxes (LO8-4)
Texas Roadhouse opened a new restaurant in October. During its first three months of operation, the restaurant sold gift cards in various amounts totaling $2,000. The cards are redeemable for meals within one year of the purchase date. Gift cards
totaling $728 were presented for redemption during the first three months of operation prior to year-end on December 31. The sales tax rate on restaurant sales is 4%, assessed at the time meals (not gift cards) are purchased. Texas Roadhouse will remit
sales taxes in January.
Required:
1. & 2. Record (in summary form) the $2,000 in gift cards sold (keeping in mind that, in actuality, the firm would record each sale of a gift card individually) and the $728 in gift cards redeemed. (Hint: The $728 includes a 4% sales tax of $28.) (If no entry
is required for a transaction/event, select "No journal entry required" in the first account field.)
View transaction list
Journal entry worksheet
2
Record the cash received for gift cards.
Note: Enter debits before credits.
Transaction
General Journal
Debit
Credit
Record entry
Clear entry
View general journal
3. Determine the balance in the Deferred Revenue account (remaining liability for gift cards) Texas Roadhouse will report on the December 31 balance sheet.
Deferred revenue

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11.
value:
0.71 points
Problem 8-8A Record contingencies (LO8-5)
Dinoco Petroleum faces three potential contingency situations, described below. Dinoco's fiscal year ends December 31, 2018, and it issues its 2018 financial statements on March 15, 2019.
Assume that the loss is probable.
1. In the initial trial, Dinoco lost a $121 million lawsuit resulting from a dispute with a supplier. The case is under appeal. Although Dinoco is unable to predict the outcome, it does not expect the case to have a material adverse effect on the company.
2. In November 2017, the state of Texas filed suit against Dinoco, seeking civil penalties and injunction relief for violations of environmental laws regulating hazardous waste. On January 12, 2019, Dinoco reached a settlement with state authorities. Based
upon discussions with legal counsel, it is probable that Dinoco will require $141 million to cover the cost of violations.
3. Dinoco is the plaintiff in a $210 million lawsuit filed against a customer for damages due to lost profits from rejected contracts and for unpaid receivables. The case is in final appeal, and legal counsel advises that it is probable Dinoco will prevail and be
awarded $105 million.
Required:
Determine the appropriate means of reporting each situation for the year ended December 31, 2018, and record any necessary entries. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.
Enter your answer in dollars, not in millions (i.e., $5.5 million should be entered as 5,500,000).)
View transaction list
Journal entry worksheet
2
3
Record the contingent liability if needed.
Note: Enter debits before credits.
Transaction
General Journal
Debit
Credit
Record entry
Clear entry
View general journal

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12.
value:
0.71 points
Problem 8-9A Calculate and analyze ratios (LO8-6)
Selected financial data regarding current assets and current liabilities for ACME Corporation and Wayne Enterprises, are as follows:
ACME
Wayne
($ in millions)
Corporation Enterprises
Current assets:
Cash and cash equivalents
$
535
Current investments
519
Net receivables
510
66
Inventory
10,699
7,209
Other current assets
1,378
115
Total current assets
$ 13,127
$ 8,054
Current liabilities:
Current debt
7,221
$ 4,223
Accounts payable and accrued liabilities
1,667
921
Other current liabilities
1,033
2,582
Total current liabilities
$ 9,921
$ 7,726
Required:
1-a. Calculate the current ratio for ACME Corporation and Wayne Enterprises. (Enter your answers in millions (i.e., $5,500,000 should be entered as 5.5).)
Current Ratio
ACME Corporation
Wayne Enterprises

Screen Shot 2019-10-14 at 8.24.32 PM.png

Required:
1-a. Calculate the current ratio for ACME Corporation and Wayne Enterprises. (Enter your answers in millions (i.e., $5,500,000 should be entered as 5.5).)
Current Ratio
ACME Corporation
Wayne Enterprises
1-b. Which company has the better ratio?
O Wayne Enterprises
ACME Corporation
2-a. Calculate the acid-test (quick) ratio for ACME Corporation and Wayne Enterprises. (Enter your answers in millions. (i.e., $5,500,000 should be entered as 5.5.))
Acid-Test Ratio
ACME Corporation
Wayne Enterprises
2-b. Which company has the better ratio?
Wayne Enterprises
ACME Corporation

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13.
value:
0.71 points
Great Adventures Problem 8-1
Great Adventures is a defendant in litigation involving a biking accident during one of its adventure races. The front tire on one of the bikes came off during the race, resulting in serious injury to the rider. However, Great Adventures can document that
each bike was carefully inspected prior to the race. It may have been that the rider loosened the wheel during the race and then forgot to tighten the quick-release mechanism.
For each of the following scenarios, record the necessary entry. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Required:
1. The likelihood of a payment occurring is probable, and the estimated amount is $113,000.
2. The likelihood of a payment occurring is probable, and the amount is estimated to be in the range of $93,000 to $143,000.
3. The likelihood of a payment occurring is reasonably possible, and the estimated amount is $113,000.
4. The likelihood of a payment occurring is remote, while the estimated potential amount is $113,000.
View transaction list
Journal entry worksheet
2
3
4
Record a loss contingency if necessary.
Note: Enter debits before credits.
Transaction
General Journal
Debit
Credit
Record entry
Clear entry
View general journal

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On January 1, 2018, the general ledger of ACME Fireworks includes the following account balances:
Accounts
Debit
Credit
Cash
$ 25,500
Accounts Receivable
47,000
Allowance for Uncollectible Accounts
$ 4,600
Inventory
20,400
Land
50,000
Equipment
17,000
Accumulated Depreciation
1,900
Accounts Payable
28,900
Notes Payable (6%, due April 1, 2019)
54,00
Common Stock
39,000
Retained Earnings
31,500
Totals
$159,900 $159,900
During January 2018, the following transactions occur:
January 2
Sold gift cards totaling $8,800. The cards are redeemable for merchandise within one year of
the purchase date.
January 6 Purchase additional inventory on account, $151,000.
January 15 Firework sales for the first half of the month total $139,000. All of these sales are on account.
The cost of the units sold is $75,800.
January 23 Receive $125,800 from customers on accounts receivable.
January 25 Pay $94,000 to inventory suppliers on accounts payable
January 28 Write off accounts receivable as uncollectible, $5,200.
January 30 Firework sales for the second half of the month total $147,000. Sales include $12,000 for cash
and $135,000 on account. The cost of the units sold is $81,500.
January 31 Pay cash for monthly salaries, $52,400.
The following information is available on January 31, 2018.
a. Depreciation on the equipment for the month of January is calculated using the straight-line method. At the time the equipment was purchased, the company estimated a residual value of $3,800 and a two-year service life.
b. At the end of January, $15,000 of accounts receivable are past due, and the company estimates that 30% of these accounts will not be collected. Of the remaining accounts receivable, the company estimates that 3% will not be collected.
C. Accrued interest expense on notes payable for January.
d. Accrued income taxes at the end of January are $13,400.
e. By the end of January, $3,400 of the gift cards sold on January 2 have been redeemed.
Requirement
General
General
Ledger
Trial Balance
Income
Journal
Statement
Balance Sheet
Analysis
1. Record each of the transactions listed above in the 'General Journal' tab (these are shown as items 1 - 10) assuming a
FIFO perpetual inventory system. The transactions on January 15 and January 30 require two entries: one to record sales
revenue and one to record cost of goods sold. Review the 'General Ledger' and the 'Trial Balance' tabs to see the effect of
the transactions on the account balances.
2. Record adjusting entries on January 31. in the 'General Journal' tab (these are shown as items 11-15).
3. Review the adjusted 'Trial Balance' as of January 31, 2018, in the 'Trial Balance' tab.
4. Prepare a multiple-step income statement for the period ended January 31, 2018, in the 'Income Statement' tab.
5. Prepare a classified balance sheet as of January 31, 2018, in the 'Balance Sheet' tab.
6. Record the closing entries in the 'General Journal' tab (these are shown as items 16 and 17).
7. Using the information from the requirements above, complete the 'Analysis' tab.
Requirement
General Journal >

Screen Shot 2019-10-14 at 8.26.48 PM.png

January 6
the purchase date.
Purchase additional inventory on account, $151,000
January 15 Firework sales for the first half of the month total $139,000. All of these sales are on account.
The cost of the units sold is $75,800.
January 23 Receive $125,800 from customers on accounts receivable.
January 25 Pay $94,000 to inventory suppliers on accounts payable.
January 28 Write off accounts receivable as uncollectible, $5,200.
January 30 Firework sales for the second half of the month total $147,000. Sales include $12,000 for cash
and $135,000 on account. The cost of the units sold is $81,500.
January 31 Pay cash for monthly salaries, $52,400.
The following information is available on January 31, 2018.
a. Depreciation on the equipment for the month of January is calculated using the straight-line method. At the time the equipment was purchased, the company estimated a residual value of $3,800 and a two-year service life.
b. At the end of January, $15,000 of accounts receivable are past due, and the company estimates that 30% of these accounts will not be collected. Of the remaining accounts receivable, the company estimates that 3% will not be collected.
c. Accrued interest expense on notes payable for January.
d. Accrued income taxes at the end of January are $13,400.
e. By the end of January, $3,400 of the gift cards sold on January 2 have been redeemed.
Requirement
General
General
Journal
Ledger
Trial Balance
Income
Statement
Balance Sheet
Analysis
If no entry is required for a transaction/event, select "No journal entry required" in the first account field.
View transaction list
Journal entry worksheet
2
3
4
5
6
7
8 . ....
17
Sold gift cards totaling $8,800. The cards are redeemable for merchandise
within one year of the purchase date.
Note: Enter debits before credits.
Date
Account Title
Debit
Credit
Jan 02
Record entry
Clear entry
View general journal

Screen Shot 2019-10-14 at 8.26.59 PM.png

the purchase date.
January 6 Purchase additional inventory on account, $151,000.
January 15 Firework sales for the first half of the month total $139,000. All of these sales are on account.
The cost of the units sold is $75,800.
January 23 Receive $125,800 from customers on accounts receivable.
January 25 Pay $94,000 to inventory suppliers on accounts payable
January 28 Write off accounts receivable as uncollectible, $5,200.
January 30 Firework sales for the second half of the month total $147,000. Sales include $12,000 for cash
and $135,000 on account. The cost of the units sold is $81,500.
January 31 Pay cash for monthly salaries, $52,400.
The following information is available on January 31, 2018.
a. Depreciation on the equipment for the month of January is calculated using the straight-line method. At the time the equipment was purchased, the company estimated a residual value of $3,800 and a two-year service life.
b. At the end of January, $15,000 of accounts receivable are past due, and the company estimates that 30% of these accounts will not be collected. Of the remaining accounts receivable, the company estimates that 3% will not be collected.
C. Accrued interest expense on notes payable for January.
d. Accrued income taxes at the end of January are $13,400.
e. By the end of January, $3,400 of the gift cards sold on January 2 have been redeemed.
Requirement
General
General
Income
Ledger
Trial Balance
Statement
Balance Sheet
Analysis
Journal
Unadjusted
General Ledger Account
Cash
Accounts receivable
No.
Date
Debit
Credit
Balance
No
Date
Debit
Credit
Balance
Dec 31
25,500
Dec 31
47,000
Allowance for uncollectible accounts
Inventory
No.
Date
Debit
Credit
Balance
No
Date
Debit
Credit
Balance
Dec 31
4,600
Dec 31
20,400
Land
Equipment
No.
Date
Debit
Credit
Balance
No
Date
Debit
Credit
Balance
Dec 31
50,000
Dec 31
17,000
Accumulated depreciation
Accounts payable
No.
Date
Debit
Credit
Balance
No.
Date
Debit
Credit
Balance
Dec 31
1,900
Dec 31
28,900
Notes payable
Common stock
No.
Date
Debit
Credit
Balance
No.
Date
Debit
Credit
Balance
Dec 31
54,000
Dec 31
39,000
Retained earnings
No.
Date
Debit
Credit
Balance

Screen Shot 2019-10-14 at 8.27.14 PM.png

the purchase date.
January 6 Purchase additional inventory on account, $151,000.
January 15 Firework sales for the first half of the month total $139,000. All of these sales are on account.
The cost of the units sold is $75,800.
January 23 Receive $125,800 from customers on accounts receivable.
January 25 Pay $94,000 to inventory suppliers on accounts payable.
January 28 Write off accounts receivable as uncollectible, $5,200.
January 30 Firework sales for the second half of the month total $147,000. Sales include $12,000 for cash
and $135,000 on account. The cost of the units sold is $81,500.
January 31 Pay cash for monthly salaries, $52,400.
The following information is available on January 31, 2018.
a. Depreciation on the equipment for the month of January is calculated using the straight-line method. At the time the equipment was purchased, the company estimated a residual value of $3,800 and a two-year service life.
b. At the end of January, $15,000 of accounts receivable are past due, and the company estimates that 30% of these accounts will not be collected. Of the remaining accounts receivable, the company estimates that 3% will not be collected.
C. Accrued interest expense on notes payable for January.
d. Accrued income taxes at the end of January are $13,400.
e. By the end of January, $3,400 of the gift cards sold on January 2 have been redeemed.
Requirement
General
General
Journal
Ledger
Trial Balance
Income
Statement
Balance Sheet
Analysis
Notice the dropdown below that gives the options to select the unadjusted, adjusted or post-closing trial balance. The option
you choose will be the values used to populate the income statement and balance sheet tabs.
Unadjusted
ACME Fireworks
Trial Balance
January 31, 2018
Account Title
Debit
Credit
Cash
$
25,500
Accounts receivable
47,000
+Allowance for uncollectible accounts
4.600
* Inventory
20,400
Land
50,000
Equipment
17,000
+ Accumulated depreciation
1,900
Accounts payable
28,900
Notes payable
54,000
Common stock
39,000
Retained earnings
31,500
Total
$
159,900 $
159,900
< General Ledger
Income Statement >

Screen Shot 2019-10-14 at 8.27.24 PM.png

the purchase date.
January 6 Purchase additional inventory on account, $151,000.
January 15 Firework sales for the first half of the month total $139,000. All of these sales are on account.
The cost of the units sold is $75,800.
January 23 Receive $125,800 from customers on accounts receivable.
January 25 Pay $94,000 to inventory suppliers on accounts payable.
January 28 Write off accounts receivable as uncollectible, $5,200.
January 30 Firework sales for the second half of the month total $147,000. Sales include $12,000 for cash
and $135,000 on account. The cost of the units sold is $81,500
January 31 Pay cash for monthly salaries, $52,400
The following information is available on January 31, 2018.
a. Depreciation on the equipment for the month of January is calculated using the straight-line method. At the time the equipment was purchased, the company estimated a residual value of $3,800 and a two-year service life.
b. At the end of January, $15,000 of accounts receivable are past due, and the company estimates that 30% of these accounts will not be collected. Of the remaining accounts receivable, the company estimates that 3% will not be collected.
c. Accrued interest expense on notes payable for January.
d. Accrued income taxes at the end of January are $13,400.
e. By the end of January, $3,400 of the gift cards sold on January 2 have been redeemed.
Requirement
General
General
Income
Journal
Ledger
Trial Balance
Statement
Balance Sheet
Analysis
Choose the appropriate accounts to complete the company's income statement. Select 'adjusted' from the dropdown, which
will then populate the balances in those accounts from the adjusted trial balance.
Unadjusted
ACME Fireworks
Multiple-Step Income Statement
For the year ended January 31, 2018
Gross profit
Total operating expenses
Operating income
< Trial Balance
Balance Sheet >

Screen Shot 2019-10-14 at 8.27.36 PM.png

January 28 Write off accounts receivable as uncollectible, $5,200.
January 30 Firework sales for the second half of the month total $147,000. Sales include $12,000 for cash
and $135,000 on account. The cost of the units sold is $81,500.
January 31 Pay cash for monthly salaries, $52,400
The following information is available on January 31, 2018.
a. Depreciation on the equipment for the month of January is calculated using the straight-line method. At the time the equipment was purchased, the company estimated a residual value of $3,800 and a two-year service life.
b. At the end of January, $15,000 of accounts receivable are past due, and the company estimates that 30% of these accounts will not be collected. Of the remaining accounts receivable, the company estimates that 3% will not be collected.
c. Accrued interest expense on notes payable for January.
d. Accrued income taxes at the end of January are $13,400.
e. By the end of January, $3,400 of the gift cards sold on January 2 have been redeemed.
Requirement
General
General
Journal
Ledger
Trial Balance
Income
Statement
Balance Sheet
Analysis
Choose the appropriate accounts to complete the company's balance sheet. Make sure to select 'adjusted' from the dropdown,
which will then populate the balances in those accounts from the adjusted trial balance.
Unadjusted
ACME Fireworks
Classified Balance Sheet
January 31, 2018
Assets
Liabilities
Current Assets
Current Liabilities:
Total Current Liabilities
Total Current Assets
Total Liabilities
Noncurrent Assets:
Stockholders' Equity
Total Stockholders' Equity
Total Assets
Total Liabilities & Stockholders' Equity
< Income Statement
Analysis >

Screen Shot 2019-10-14 at 8.27.46 PM.png

January 28 Write off accounts receivable as uncollectible, $5,200.
January 30 Firework sales for the second half of the month total $147,000. Sales include $12,000 for cash
and $135,000 on account. The cost of the units sold is $81,500.
January 31 Pay cash for monthly salaries, $52,400.
The following information is available on January 31, 2018.
a. Depreciation on the equipment for the month of January is calculated using the straight-line method. At the time the equipment was purchased, the company estimated a residual value of $3,800 and a two-year service life.
b. At the end of January, $15,000 of accounts receivable are past due, and the company estimates that 30% of these accounts will not be collected. Of the remaining accounts receivable, the company estimates that 3% will not be collected.
c. Accrued interest expense on notes payable for January.
d. Accrued income taxes at the end of January are $13,400
e. By the end of January, $3,400 of the gift cards sold on January 2 have been redeemed.
Requirement
General
General
Income
Journal
Ledger
Trial Balance
Statement
Balance Sheet
Analysis
Calculate the ratios to the nearest 1 decimal place.
Analyze the following for ACME Fireworks:
(a) Calculate the current ratio at the end of January. If the average current ratio for the industry is 1.8, is ACME Fireworks more or
less liquid than the industry aver
The current ratio is:
Is the company more or less liquid than the industry average?
(b) Calculate the acid-test ratio at the end of January. If the average acid-test ratio for the industry is 1.5, is ACME Fireworks more
or less likely to have difficulty paying its currently maturing debts (compared to the industry average)?
The acid-test ratio is:
Is the company more or less likely to have difficulty paying its currently maturing debts?
(c) Assume the notes pay
otes payable were due on April 1, 2018, rather than April 1, 2019. Calculate the revised current ratio at the end of
January, and indicate whether the revised ratio would increase, decrease, or remain unchanged compared to your answer in (a).
The revised current ratio is
Indicate whether the revised ratio would increase, decrease, or remain unchanged compared to your answer
in (a).
<Balance Sheet
Analysis

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