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American Eagle Outfitters, Inc. vs. The Buckle, Inc. RWP8 - Financial information for American Eagle is presented in 9 Appendix A at the end of the book, and financial information for Backle is peesented in ( Appendix B at the end or the book. Required 1. Calculate the current ratio for both companies for the most recent year. Which company has the more fivorable ratio? Compare your calculations with those for Lilted Airlines and American Alrilies reported in the chapter text. Which industry maintains a higher current ratio? 2. Calculate the acidest (quick) ratio for both companies for the most recent year, 2011. Which company has the more favorable ratio? Compare your calculations with those for United Airlines and American Airlines reported in the chapter text. Which industry maintains a higher acidtest ratio? 3. How wouid the purchase of additional inventory with accounts payyble atfect the current ratio for these two companies? AMERICAN EAGLE OUTFITTERS, INC. Consolidated Balance Sheets (n thousandi, brocost per shave amounts) Assets Current assets Cash and cash oquvalents Shontherm investments (avalable for sale) Wiorchandise itventory Accounts recelvable, net Total cument assets Proparty and equipment, at cost, net of accumulated depreciation Operating lease right-of-use assets Intang ble assets, net, including goodwill Non-current delerred income taxes Ohtier assets Total assets Llaburties and Stockholders' Equity Cument liablities: Accounts payable Cutrent portion of operating lease liabilities Accrued income and other taxes Accruod compensation and payroll taxes Unedeemed gif cards and gift certificales Other current fiabilities and accrued expenses Total current fiabilities Non-cument labilities: Non-current operating lease liabilies Othnr noricurrent liabisties Tolal non-current liabilties Cocnmitments and contingencies Slockholders' equity: Preferred stock, 50.01 par value, 5,000 shares authorized; none issued and outstanding Common stock, 50.01 par value; 600,000 shares authorized; 240,506 shares Contributed capitsl Accumulated other comprehensive loss, net of tax Retained camings Tressury stook, 82,573 and 77,130 shares, respectrvely, at oost Total slockholdere' equity Total labities and stockholders' equity Refer to Noles is Consolidated Financial Statements. Tht aticktritic: xverts ctoment assts C.KaNT 13hm rmes:- stockase bosy LoumY okse 8 : Airport Accessories (AA) has several loans outstanding with a local bank. The loan contract contains an agreement that AA must maintain a current ratio of at least 0.90 . Micah, the assistant controller, estimates that the year-end current assets and current liabilities will be $2,100.000 and $2.400,000, respectively, These estimates provide a current ratio of only 0.875 . Violation of the debt agreement will inerease AA's borrowing costs because the loans will be renegotiated at higher interest rates: Micah proposes that AA purchase inventory of $600.000 on credit before year-end. This will cause both current assets and current liabilities to increase by the same amount, but the current ratio will inerease to 0.90 . Thejextra $600,000 in inventory will be used over the next year. However, the purchase will cause warehousing costs and financing costs to increase. American Eagle Outfitters, Inc. vs. The Buckle, Inc. RWP8 - Financial information for American Eagle is presented in 9 Appendix A at the end of the book, and financial information for Backle is peesented in ( Appendix B at the end or the book. Required 1. Calculate the current ratio for both companies for the most recent year. Which company has the more fivorable ratio? Compare your calculations with those for Lilted Airlines and American Alrilies reported in the chapter text. Which industry maintains a higher current ratio? 2. Calculate the acidest (quick) ratio for both companies for the most recent year, 2011. Which company has the more favorable ratio? Compare your calculations with those for United Airlines and American Airlines reported in the chapter text. Which industry maintains a higher acidtest ratio? 3. How wouid the purchase of additional inventory with accounts payyble atfect the current ratio for these two companies? AMERICAN EAGLE OUTFITTERS, INC. Consolidated Balance Sheets (n thousandi, brocost per shave amounts) Assets Current assets Cash and cash oquvalents Shontherm investments (avalable for sale) Wiorchandise itventory Accounts recelvable, net Total cument assets Proparty and equipment, at cost, net of accumulated depreciation Operating lease right-of-use assets Intang ble assets, net, including goodwill Non-current delerred income taxes Ohtier assets Total assets Llaburties and Stockholders' Equity Cument liablities: Accounts payable Cutrent portion of operating lease liabilities Accrued income and other taxes Accruod compensation and payroll taxes Unedeemed gif cards and gift certificales Other current fiabilities and accrued expenses Total current fiabilities Non-cument labilities: Non-current operating lease liabilies Othnr noricurrent liabisties Tolal non-current liabilties Cocnmitments and contingencies Slockholders' equity: Preferred stock, 50.01 par value, 5,000 shares authorized; none issued and outstanding Common stock, 50.01 par value; 600,000 shares authorized; 240,506 shares Contributed capitsl Accumulated other comprehensive loss, net of tax Retained camings Tressury stook, 82,573 and 77,130 shares, respectrvely, at oost Total slockholdere' equity Total labities and stockholders' equity Refer to Noles is Consolidated Financial Statements. Tht aticktritic: xverts ctoment assts C.KaNT 13hm rmes:- stockase bosy LoumY okse 8 : Airport Accessories (AA) has several loans outstanding with a local bank. The loan contract contains an agreement that AA must maintain a current ratio of at least 0.90 . Micah, the assistant controller, estimates that the year-end current assets and current liabilities will be $2,100.000 and $2.400,000, respectively, These estimates provide a current ratio of only 0.875 . Violation of the debt agreement will inerease AA's borrowing costs because the loans will be renegotiated at higher interest rates: Micah proposes that AA purchase inventory of $600.000 on credit before year-end. This will cause both current assets and current liabilities to increase by the same amount, but the current ratio will inerease to 0.90 . Thejextra $600,000 in inventory will be used over the next year. However, the purchase will cause warehousing costs and financing costs to increase