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Chapter 3: Q11E (page 98)

Question: Calculate the current ratio for each of the following companies (round the ratio to two decimals). Identify
the company with the strongest liquidity position. (These companies represent competitors in the same
industry.)
Current Assets Current Liabilities
Edison . \( 79,040 \) 32,000
MAXT 104,880 76,000
Chatter . 45,080 49,000
TRU . 85,680 81,600
Gleeson 61,000 100,000

Short Answer

Expert verified

Edison company has strongest liquidity position.

Step by step solution

01

Definition of current

The current ratio is a ratio used to calculate a company's ability to fulfill its short-term obligations.

02

Calculation of current assets

Edison company:

MAXT Company:

Chatter Company:

TRU Company:

Gleeson Company:

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Most popular questions from this chapter

In the blank space beside each numbered balance sheet item, enter the letter of its balance sheet classification. If the item should not appear on the balance sheet, enter a Z in the blank.

A. Current assets E. Current liabilities

B. Long-term investments F. Long-term liabilities

C. Plant assets G. Equity

D. Intangible assets

5. Machinery

Question: For each case below, follow the three-step process for adjusting the unearned revenue liability

account on December 31. Step 1: Determine what the current account balance equals. Step 2: Determine

what the current account balance should equal. Step 3: Record the December 31 adjusting entry to get

from step 1 to step 2. Assume no other adjusting entries are made during the year.

a. Unearned Rent Revenue. The Krug Company collected \(6,000 rent in advance on November 1, debiting

Cash and crediting Unearned Rent Revenue. The tenant was paying 12 months’ rent in advance

and occupancy began November 1.

b. Unearned Services Revenue. The company charges \)75 per month to spray a house for insects. A

customer paid \(300 on October 1 in advance for four treatments, which was recorded with a debit to

Cash and a credit to Unearned Services Revenue. At year-end, the company has applied three treatments

for the customer.

c. Unearned Rent Revenue. On September 1, a client paid the company \)24,000 cash for six months of

rent in advance (the client leased a building and took occupancy immediately). The company recorded

the cash as Unearned Rent Revenue.

Review Apple’s balance sheet in Appendix A. Identify one asset account that requires adjustment before annual financial statements can be prepared. What would affect the income statement if this asset account were not adjusted? (Number not required, but comment on over-or understating of net income.)

Compute Chavez Company’s current ratio using the following information.

Accounts receivable \(18,000 Long-term notes payable \)21,000

Accounts payable 11,000 Office supplies. 2,800

Buildings 45,000 Prepaid insurance 3,560

Cash. 7,000 Unearned services revenue 3,000

In the blank space beside each numbered balance sheet item, enter the letter of its balance sheet classification. If the item should not appear on the balance sheet, enter a Z in the blank.

A. Current assets E. Current liabilities

B. Long-term investments F. Long-term liabilities

C. Plant assets G. Equity

D. Intangible assets

8. Current portion of long-term note payable

See all solutions

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