Question

Homework American Corporation has the following financial information.

Year 1 Year 2
Cash $202.95 $245.90
A/R 398.02 485.34
Inventory 785.12 648.54
If Year 1 is the base year, what is the percentage increase/decrease of each current asset amount?
A. Cash = 21% increase, A/R = 22% increase, Inventory = 17% decrease.
B. Cash = 25% decrease, A/R = 21% increase, Inventory = 27% decrease.
C. Cash = 21% increase, A/R = 22% decrease, inventory = 17% decrease.

Answer 1

A. Cash = 21% increase, A/R = 22% increase, Inventory = 17% decrease.

Step-by-step explanation:

A base year can be described as a year that is used as a reference year for comparison with other years.

To calculate the percentage increase/decrease of each current asset amount of Homework American Corporation, the following formula is used suing Year 1 as the base year.

Percentage increase/decrease = [(Year 2 amount - Year 1 Amount) / Year 1 Amount] * 100 .............................. (1)

Using equation (1), we have:

Percentage increase/decrease in Cash = [($245.90 - $202.95) / $202.95] * 100 = [$42.95 / $202.95] * 100 = 0.21 * 100 = 21% increase

Percentage increase/decrease in Accounts Receivable (A/R) = [($485.34 - $398.02) / $398.02] * 100 = [$87.32 / $398.02] * 100 = 0.22 * 100 = 22% increase

Percentage increase/decrease in Inventory (A/R) = [($648.54 - $785.12) / $785.12] * 100 = [-$136.58 / $785.12] * 100 = -0.17 * 100 = 17%

Based on the calculations above, the correct option is e. A. Cash = 21% increase, A/R = 22% increase, Inventory = 17% decrease.