On January 1, 2021, the general ledger of ACME Fireworks includes the following account balances:

Accounts	Debit				Credit
Cash	$	25,600
Accounts Receivable		47,200
Allowance for Uncollectible Accounts					$	4,700
Inventory		20,500
Land		51,000
Equipment		17,500
Accumulated Depreciation						2,000
Accounts Payable						29,000
Notes Payable (6%, due April 1, 2022)						55,000
Common Stock						40,000
Retained Earnings						31,100
Totals	$	161,800			$	161,800

During January 2021, the following transactions occur:

January		2		Sold gift cards totaling $9,000. The cards are redeemable for merchandise within one year of the purchase date.
January		6		Purchase additional inventory on account, $152,000.
January		15		Firework sales for the first half of the month total $140,000. All of these sales are on account. The cost of the units sold is $76,300.
January		23		Receive $125,900 from customers on accounts receivable.
January		25		Pay $95,000 to inventory suppliers on accounts payable.
January		28		Write off accounts receivable as uncollectible, $5,300.
January		30		Firework sales for the second half of the month total $148,000. Sales include $10,000 for cash and $138,000 on account. The cost of the units sold is $82,000.
January		31		Pay cash for monthly salaries, $52,500.

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

• 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

• 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

• Decrease the current ratio

• Increase the current ratio

• Remain unchanged