On January 1, 2024, the general ledger of ACME Fireworks includes the following account balances: Accounts: 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, 2025) 55,000 Common Stock 40,000 Retained Earnings 31,100 Totals $161,800 $161,800 During January 2024, 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. ACME uses the perpetual inventory system. 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. The following information is available on January 31. Depreciation on the equipment for the month of January is calculated using the straight-line method. At the time the equipment was purchased, the company estimated a residual value of $3,700 and a two-year service life. The company records an adjusting entry for $12,520 for estimated future uncollectible accounts. The company has accrued interest on notes payable for January. The company has accrued income taxes at the end of January of $13,500. By the end of January, $3,500 of the gift cards sold on January 2 have been redeemed (ignore cost of goods sold).

ANALYZE THE FOLLOWING

(a) Calculate the current ratio at the end of January. If the average current ratio for the industry is 1.80, is ACME Fireworks more or less liquid than the industry average? (calculate ratios into 2 decimal places)

• The current ratio is?
• Is the company more or less liquid than the industry average?

(b) Calculate the acid-test ratio at the end of January 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)?

• The acid-test ratio is:
• Is the company more or less likely to have difficulty paying its currently maturing debts?

(c) Assume the notes payable were due on April 1, 2024, rather than April 1, 2025. Calculate the revised current ratio at the end of January. and indicate whether the revised ratio would increase, decrease, or remain unchanged compared to your answer in (a)

• The revised current ratio is:
• Indicate whether the revised ratio would increase, decrease, or remain unchanged compared to your answer in (a).