Question

Refer to Simon Company's balance sheets in exercise 17-6. (1) Compute the current ratio for each of the three years. Did the current ratio improve or worsen over the three-year period? (2) Compute the acid-test ratio for each of the three years. Did the acid-test ratio improve or worsen over the three-year period? Round ratios to two decimals.

Answer 1

Without the actual balance sheet data for Simon Company, it's impossible to calculate the specific current ratio and acid-test ratio or to assess whether these ratios improved or worsened over the specified three-year period.

Step-by-step explanation:

The student is asking how to calculate the current ratio and acid-test ratio from the balance sheets of Simon Company for a three-year period, in order to evaluate the company's liquidity. The current ratio is calculated as Current Assets divided by Current Liabilities, while the acid-test ratio, also known as the quick ratio, is calculated as (Current Assets - Inventory) divided by Current Liabilities. These ratios are important indicators of a company's ability to pay off its short-term liabilities with its short-term assets.

To improve on the current ratio and acid-test ratio, a company should either increase its current assets or decrease its current liabilities. An improvement in these ratios would be indicated by a higher value over time, while a worsening situation would be reflected by a lower value. Without the actual balance sheet data, it's not possible to compute the exact ratios or determine whether they improved or worsened.