Required information [The following information applies to the questions displayed below.] On January 1, 2021, the general ledger of ACME Fireworks includes the following account balances: Accounts Debit Credit Cash $ 27,100 Accounts Receivable 50,200 Allowance for Uncollectible Accounts $ 6,200 Inventory 22,000 Land 66,000 Equipment 25,000 Accumulated Depreciation 3,500 Accounts Payable 30,500 Notes Payable (6%, due April 1, 2022) 70,000 Common Stock 55,000 Retained Earnings 25,100 Totals $ 190,300 $ 190,300

During January 2021, the following transactions occur: January 2 Sold gift cards totaling $12,000. The cards are redeemable for merchandise within one year of the purchase date. January 6 Purchase additional inventory on account, $167,000. January 15 Firework sales for the first half of the month total $155,000. All of these sales are on account. The cost of the units sold is $83,800. January 23 Receive $127,400 from customers on accounts receivable. January 25 Pay $110,000 to inventory suppliers on accounts payable. January 28 Write off accounts receivable as uncollectible, $6,800. January 30 Firework sales for the second half of the month total $163,000. Sales include $17,000 for cash and $146,000 on account. The cost of the units sold is $89,500. January 31 Pay cash for monthly salaries, $54,000.

• 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 $5,200 and a two-year service life.

• The company estimates future uncollectible accounts. The company determines $31,000 of accounts receivable on January 31 are past due, and 30% of these accounts are estimated to be uncollectible. The remaining accounts receivable on January 31 are not past due, and 4% of these accounts are estimated to be uncollectible. (Hint: Use the January 31 accounts receivable balance calculated in the general ledger.)

• Accrued interest expense on notes payable for January.

• Accrued income taxes at the end of January are $15,000.

• By the end of January, $5,000 of the gift cards sold on January 2 have been redeemed.

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? 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)? 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. Decrease the current ratio Increase the current ratio Remain unchanged