Ed-21 analyzing the ability to pay liabilities

ED-21 Analyzing the ability to pay liabilities

ED-21 Large Land Photo Shop has asked you to determine whether the company’s ability to pay current liabilities and total liabilities improved or deteriorated during 2015. To answer this question, you gather the following data:

2015                2014

Cash                                        $ 58,000          $ 57,000
Short-term Investments            31,000             0

Net Accounts Receivables       110,000           132,000
Merchandise Inventory            247,000           297,000

Total Assets                             585,000           535,000

Total Current Liabilities           255,000           222,000
Long-term Note Payable          46,000             48,000
Income From Operations         180,000           153,000
Interest Expense                      52,000             39,000

Compute the following ratios for 2015 and 2014, and evaluate the company’s
ability to pay its current liabilities and total liabilities:
a. Current ratio                         d. Debt ratio
b. Cash ratio                            e. Debt to equity ratio
c. Acid-test ratio

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