# Determination of Liquid, Activity and Solvency Ratios

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Sub: Finance                                                             Topic: Managerial Accounts

Determination of Liquid, Activity and Solvency Ratios

Question:
These summarized data were obtained from the accounting records of Hamberg Company at the end
of its fiscal year, September 30:

2008                       2007

Cash                                                                           \$ 30,225                   \$ 27,240

Accounts receivable                                                             149,375                    128,160

Inventory                                                                       140,250                    90,690

All other assets                                                                435,900                    333,580

Accounts payable                                                                131,625                    109,500

Bank note payable, due in 90 days                                               60,000                     36,000

Note payable, due in 8 years                                                    34,375                     27,500

Sales                                                                           980,800                    800,680

Cost of goods sold                                                              827,500                    651,780

Operating expenses                                                              35,650                     26,330

Compute the following for 2008 given the data provided:

A: Activity ratios.

B. Liquidity and solvency ratios.

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Sub: Finance                                                            Topic: Managerial Accounts

Solution:

2008                2007

Cash                                                                                                \$ 30,225          \$ 27,240

Accounts receivable                                                                               \$ 149,375         \$ 128,160

Inventory                                                                                         \$ 140,250           \$ 90,690

All other assets                                                                                  \$ 435,900         \$ 333,580

Accounts payable                                                                                  \$ 131,625         \$ 109,500

Bank note payable, due in 90days                                                                    \$ 60,000          \$ 36,000

Note payable, due in 8 years                                                                        \$ 34,375          \$ 27,500

Sales                                                                                             \$ 980,800         \$ 800,680

Cost of goods sold                                                                                \$ 827,500         \$ 651,780

Operating expenses                                                                                  \$ 35,650          \$ 26,330

ACTIVITY RATIOS:

Accounts receivable turnover = Sales/Average Accounts receivable                                         7.07

Assets turnover = Sales /Total assets                                                                    1.30

Inventory turnover = Cost of goods sold/Average inventory                                                7.17

LIQUIDITY RATIOS:

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Sub: Finance                                                            Topic: Managerial Accounts

Current ratio = Current assets/Current liabilities                                                       1.67

Quick ratio = (Current assets-inventory)/Current liabilities                                             0.94

SOLVENCY RATIOS:

Debt:

Accounts payable
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