Question 5 has three parts (i.e., parts a, b and c). Please provide a step-by-step explanation using either an Excel spreadsheet and or accounting formulas. Thanks!
Analysis and Interpretation of Liquidity and Solvency Balance sheets and income statements for Costco Wholesale Corporation follow. Costco Wholesale Corporation Consolidated Statements of Earnings For Fiscal Years Ended ($ millions) August 28, 2016 August 30, 2015 August 31, 2014 Revenue Net Sales $116,073 $113,666 $110,212 Membership fees 2,646 2,533 2,428 Total revenue 118,719 116,199 112,640 Operating expenses Merchandise costs 102,901 101,065 98,458 Selling, general and administrative 12,068 11,445 10,899 Preopening expenses 78 65 63 Operating Income 3,672 3,624 3,220 Other income (expense) Interest expense (133) (124) (113) Interest income and other, net 80 104 90 Income before income taxes 3,619 3,604 3,197 Provision for income taxes 1,243 1,195 1,109 Net income including noncontrolling interests 2,376 2,409 2,088 Net income attributable to noncontrolling interests (26) (32) (30) Net income attributable to Costco $2,350 $2,377 $2,058Costco Wholesale Corporation Consolidated Balance Sheets ($ millions, except par value and share data) August 28, 2016 August 30, 2015 Assets Current assets Cash and cash equivalents $3,379 $4,801 Short-term investments 1,350 1,618 Receivables, net 1,252 1,224 Merchandise inventories 8,969 8,908 Deferred income taxes and other current assets 268 228 Total current assets 15,218 16,779 Property and equipment Land 5,395 4,961 Buildings and improvements 13,994 12,618 Equipment and fixtures 6,077 5,274 Construction in progress 701 811 Gross property and equipment 26,167 23,664 Less accumulated depreciation and amortization 9,124) (8,263) Net property and equipment 17,043 15,40 Other assets 902 837 Total assets $33,163 $33,017 Liabilities and equity Current liabilities Accounts payable $7,612 $9,011 Current portion long-term debt $1,100 $1,283 Accrued salaries and benefits 2,629 2,468 Accrued member rewards 869 813 Deferred membership fees 1,362 1,269 Other current liabilities 2,003 1,695 Total current liabilities 15,575 16,539Liabilities and equity Current liabilities Accounts payable $7,612 $9,011 Current portion long-term debt $1,100 $1,283 Accrued salaries and benefits 2,629 2,468 Accrued member rewards 869 813 Deferred membership fees 1,362 1,269 Other current liabilities 2,003 1,695 Total current liabilities 15,575 16,539 Long-term debt, excluding current portion 4,061 4,852 Other liabilities 1,195 783 Total liabilities 20,831 22,174 Equity Preferred stock, $0.005 par value: 100,000,000 shares authorized; no shares issued and outstanding 0 0 Common stock, $0.005 par value: 900,000,000 shares authorized; 437,524,000 and 437,952,000 shares issued and outstanding 2 2 Additional paid-in-capital 5,490 5,218 Accumulated other comprehensive loss (1,099) (1,121) Retained earnings 7,686 6,518 Total Costco stockholders' equity 12,079 10,617 Noncontrolling interests 253 226 Total equity 12,332 10,843 Total liabilities and equity $33,163 $33,017(a) Compute Costco's current ratio and quick ratio for 2016 and 2015. (Round answers two decimal places.) 2016 current ratio = 2015 current ratio = 2016 quick ratio = 2015 quick ratio = (b) Compute Costco's times interest earned and its liabilities-to-equity ratios for 2016 and 2015. (Round answers two decimal places.) 2016 times interest earned = 2015 times interest earned = 2016 liabilities-to-equity = 2015 liabilities-to-equity = (c) Which of the following statements best describes Costco's liquidity or solvency? Costco's liabilities-to-equity ratio increased during 2016 thus its solvency has improved. Costco's times interest earned is high thus there is concern for Costco's solvency. Costco's quick and current ratios slightly increased therefore its liquidity has declined. Costco's times interest earned ratio is high thus solvency is not a concern for Costco
