Chapter Nine, Exercises 3 and 4

Liquidity ratios. Edison, Stagg, and Thornton have the following financial information at the close of business on July 10:

Edison

Stagg

Thornton

Cash

$5000

$3500

$2000

Short-Term Investments

3,000

2,500

2,000

Accounts Receivable

2,000

2,500

3,000

Inventory

1,000

2,500

4,000

Prepaid Expenses

800

800

800

Accounts Payable

200

200

200

Notes Payable: Short-Term

3,100

3,100

3,100

Accrued Payables

300

300

300

Long-Term Liabilities

3,800

3,800

3,800

Account to be changed	Original Amount
Ch 9 Ex 3
Edison
Cash	$5,000
Stagg
Cash	$3,500
Thornton
Cash	$2,000

Compute the current and quick ratios for each of the three companies. (Round calculations to two decimal places.) Which firm is the most liquid? Why?

Suppose Thornton is using FIFO for inventory valuation and Edison is using LIFO. Comment on the comparability of information between these two companies.

If all short-term notes payable are due on July 11 at 8 a.m., comment on each company's ability to settle its obligation in a timely manner.

Compute the current and quick ratios for each of the three companies. (Round calculations to two decimal places.) Which firm is the most liquid? Why?
Edison
Current ratio
Quick ratio
Stagg
Current ratio
Quick ratio
Thornton
Current ratio
Quick ratio
Suppose Thornton is using FIFO for inventory valuation and Edison is using LIFO. Comment on the comparability of information between these two companies.
If all short-term notes payable are due on July 11 at 8 a.m., comment on each company's ability to settle its obligation in a timely manner.