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Chapter 3: Q2BTN_6 (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 Google company is better than the industry while current ratio of Apple company is less as compared to the industry average.

Step by step solution

01

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

The current ratio used to determine the ability of company to fulfil its short-term obligation.

02

Comparison of current ratio

The current ratio of the Apple company is 1.10 below the average ratio of industry that is 2.0. That shows that Apple company has not in good condition to pay their short-term obligations.

The current ratio of the Google company is 4.66 which above the average ratio. That shows the company has in good condition to pay its short-term obligations.

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Most popular questions from this chapter

Question:Prepare year-end adjusting journal entries for M&R Company as of December 31, 2017, for each of the

following separate cases. (Entries can draw from the following partial chart of accounts: Cash; Accounts

Receivable; Interest Receivable; Equipment; Wages Payable; Salary Payable; Interest Payable; Lawn

Services Payable; Unearned Revenue; Revenue; Interest Revenue; Wages Expense; Salary Expense;

Supplies Expense; Lawn Services Expense; Interest Expense.)

a. M&R Company provided \(2,000 in services to customers that are expected to pay the company sometime

in January following the company’s year-end.

b. Wage expenses of \)1,000 have been incurred but are not paid as of December 31.

c. M&R Company has a \(5,000 bank loan and has incurred (but not recorded) 8% interest expense of

\)400 for the year ended December 31. The company will pay the \(400 interest in cash on January 2

following the company’s year-end.

d. M&R Company hired a firm to provide lawn services at a monthly fee of \)500 with payment occurring

on the 15th of the following month. Payment for December services will occur on January 15

following the company’s year-end.

e. M&R Company has earned \(200 in interest revenue from investments for the year ended December

31. The interest revenue will be received on January 15 following the company’s year-end.

f. Salary expenses of \)900 have been earned by supervisors but not paid as of December 31.

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

4. Interest receivable

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

5. Taxes payable

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

4. Prepaid insurance

Adjusting entries affect at least one balance sheet account and at least one income statement account.

For the entries below, identify the account to be debited and the account to be credited from the following

accounts: Cash; Accounts Receivable; Prepaid Insurance; Equipment; Accumulated

Depreciation; Wages Payable; Unearned Revenue; Revenue; Wages Expense; Insurance Expense;

Depreciation Expense. Indicate which of the accounts is the income statement account and which is

the balance sheet account.

a. Entry to record revenue earned that was previously received as cash in advance.

b. Entry to record wage expenses incurred but not yet paid (nor recorded).

c. Entry to record revenue earned but not yet billed (nor recorded).

d. Entry to record expiration of prepaid insurance.

e. Entry to record annual depreciation expense.

See all solutions

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