[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.

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 1

• 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 2

• 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 3

• Decrease the current ratio

• Increase the current ratio

• Remain unchanged