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Chapter 3: Q2BTN_5 (page 164)

Key figures for the recent two years of both Apple and Google follow.
Required
1. Compute profit margins for (a) Apple and (b) Google for the two years of data shown.
2. Which company is more successful on the basis of profit margin? Explain.
3. Compute the current ratio for both years for both companies.
4. Which company has the better ability to pay short-term obligations according to the current ratio?
5. Analyze and comment on each company’s current ratios for the past two years.
6. How do Apple’s and Google’s current ratios compare to their industry (assumed) average ratio of 2.0?
Apple Google
\( millions Current Year Prior Year Current Year Prior Year
Net income . \) 53,394 \( 39,510 \)16,348 $14,136
Net sales . 233,715 182,795 74,989 66,001
Current assets . . . . . . . . . . . . . . . 89,378 68,531 90,114 78,656
Current liabilities 80,610 63,448 19,310 16,779

Short Answer

Expert verified

Current ratio of Apple company improved as compared to previous year. On the other hand, current ratio of Google company decline as compared to previous year.

Step by step solution

01

Step-by-Step SolutionStep 1: Definition of quick ratio

The quick ratio is ratio of the quick assets and current liabilities. Quick assets are calculated by subtracting the prepaid expenses and inventories from current assets.

02

Comparison of current ratio

The current ratio of the Apple company is improved as compared to the previous year. Current ratio of Apple company in previous year is 1.08 which increases to 1.10 in the current year.

The current ratio of the Google company is declined as compared to the previous year. Current ratio of Google company in previous year is 4.68 which decreases to 4.66 in the current year.

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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

B. Long-term investments

C. Plant assets

D. Intangible assets

E. Current liabilities

F. Long-term liabilities

G. Equity

20. Current portion of long-term note payable

Prepare adjusting journal entries for the year ended (date of) December 31, 2017, for each of these separate situations.

(Entries can draw from the following partial chart of accounts: Cash; Accounts Receivable; Supplies;

Prepaid Insurance; Equipment; Accumulated Depreciation—Equipment; Wages Payable; Unearned Revenue;

Revenue; Wages Expense; Supplies Expense; Insurance Expense; Depreciation Expense—Equipment.)

a. Depreciation on the company’s equipment for 2017 is computed to be \(18,000.

b. The Prepaid Insurance account had a \)6,000 debit balance at December 31, 2017, before adjusting for

the costs of any expired coverage. An analysis of the company’s insurance policies showed that \(1,100

of unexpired insurance coverage remains.

c. The Office Supplies account had a \)700 debit balance on December 31, 2016; and \(3,480 of office

supplies were purchased during the year. The December 31, 2017, physical count showed \)300 of supplies

available.

d. Two-thirds of the work related to \(15,000 of cash received in advance was performed this period.

e. The Prepaid Insurance account had a \)6,800 debit balance at December 31, 2017, before adjusting for the

costs of any expired coverage. An analysis of insurance policies showed that \(5,800 of coverage had expired.

f. Wage expenses of \)3,200 have been incurred but are not paid as of December 31, 2017.

Question: Choose from the following list of terms/phrases to best complete the statements below.

a. Fiscal year d. Accounting period g. Natural business year

b. Timeliness e. Annual financial statements h. Time period assumption

c. Calendar year f. Interim financial statements i. Quarterly statements

1. presumes that an organization’s activities can be divided into specific time periods.

2. Financial reports covering a one-year period are known as .

3. A(n)consists of any 12 consecutive months.

4. A(n)consists of 12 consecutive months ending on December 31.

5. The value of information is often linked to its .

Question: What type of assets requires adjusting entries to record depreciation?

For each of the following separate cases, prepare adjusting entries required of financial statements for

the year ended (date of) December 31, 2017. (Entries can draw from the following partial chart of

accounts:

Cash; Interest Receivable; Supplies; Prepaid Insurance; Equipment; Accumulated

Depreciation—Equipment; Wages Payable; Interest Payable; Unearned Revenue; Interest Revenue;

Wages Expense; Supplies Expense; Insurance Expense; Interest Expense; Depreciation Expense—

Equipment.)

a. Wages of \(8,000 are earned by workers but not paid as of December 31, 2017.

b. Depreciation on the company’s equipment for 2017 is \)18,000.

c. The Office Supplies account had a \(240 debit balance on December 31, 2016. During 2017, \)5,200 of

office supplies are purchased. A physical count of supplies at December 31, 2017, shows \(440 of supplies

available.

d. The Prepaid Insurance account had a \)4,000 balance on December 31, 2016. An analysis of insurance

policies shows that \(1,200 of unexpired insurance benefits remain at December 31, 2017.

e. The company has earned (but not recorded) \)1,050 of interest from investments in CDs for the year

ended December 31, 2017. The interest revenue will be received on January 10, 2018.

f. The company has a bank loan and has incurred (but not recorded) interest expense of $2,500 for the

year ended December 31, 2017. The company must pay the interest on January 2, 2018.

See all solutions

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