During January 2021, the following transactions occur:

January		2		Sold gift cards totaling $10,800. The cards are redeemable for merchandise within one year of the purchase date.
January		6		Purchase additional inventory on account, $161,000.
January		15		Firework sales for the first half of the month total $149,000. All of these sales are on account. The cost of the units sold is $80,800.
January		23		Receive $126,800 from customers on accounts receivable.
January		25		Pay $104,000 to inventory suppliers on accounts payable.
January		28		Write off accounts receivable as uncollectible, $6,200.
January		30		Firework sales for the second half of the month total $157,000. Sales include $15,000 for cash and $142,000 on account. The cost of the units sold is $86,500.
January		31		Pay cash for monthly salaries, $53,400.

7. Analyze the following for ACME Fireworks

Requirement 1:

a-1. Calculate the current ratio at the end of January.

a-2. If the average current ratio for the industry is 1.80, is ACME Fireworks more or less liquid than the industry average?

multiple choice 1

• More liquid

• Less liquid

Requirement 2:

b-1. Calculate the acid-test ratio at the end of January.

b-2. If the average acid-test ratio for the industry is 1.50, is ACME Fireworks more or less likely to have difficulty paying its currently maturing debts (compared to the industry average)?

multiple choice 2

• More likely

• Less likely

Requirement 3:

c-1. Assume the notes payable were due on April 1, 2021, rather than April 1, 2022. Calculate the revised current ratio at the end of January.

c-2. Indicate whether the revised ratio would increase, decrease, or remain unchanged.

multiple choice 3

• Decrease the current ratio

• Increase the current ratio

• Remain unchanged