S12-6. (Learning Objective 4: Evaluating a company’s acid-test ratio) Use the Gargantua, Inc., Balance Sheet data below.

Requirements 1. Compute Gargantua, Inc.’s acid-test ratios at December 31, 20X6 and 20X5.

2. Use the comparative information from the table on the bottom of the following page for Horner, Inc., Isaacson Company, and Jona Companies Limited. Are Gargantua, Inc.’s acid-test ratios for 20X6 and 20X5 strong, average, or weak in comparison?

Transcribed Image Text:

A1 20 123456789UUUUUUUUUU2222222222222 Gargantua, Inc. Balance Sheets (Adapted) 3 (Dollar amounts in millions) 4 Assets Current Assets Cash and cash equivalents Short-term investments Receivables, net Inventories Increase (Decrease) Percentage Dec 31, 20X6 Dec 31, 20X5 Amount $ 1,203 $ 903 $ 300 33.2% 7 84 (77) (91.7) 246 256 (10) (3.9) 91 81 10 12.3 10 Prepaid expenses and other assets 203 343 (140) (40.8) 11 Total current assets 1,750 1,667 83 5.0 Property, plant and equipment, net Intangible assets 3,619 3,396 223 6.6 1,089 841 248 29.5 Other assets 824 718 106 14.8 Total assets $ 7,282 $ 6,622 660 10.0% 16 Liabilities and Shareholders' Equity Current liabilities Accounts payable Income tax payable Short-term debt Other Total current liabilities Long-term debt Other liabilities Total liabilities Shareholders' equity Share capital - Retained earnings 1,513 1,629 (116) Accumulated other comprehensive (loss) (159) (176) 17 (7.1) 9.7 30 Total shareholders' equity 1,354 1,453 (99) (6.8) Total liabilities and shareholders' equity $ 7,282 $ 6,622 $ 660 10.0% $ 977 $ 884 $ 93 39 69 (30) 10.50% (44) 121 115 6 70 73 (3) 1,207 1,141 66 3,544 2,982 562 18.8 1,177 1,046 131 12.5 5,928 5,169 759 14.7 4238857 (4)