Guinther & Sons,Inc. ,a retailer of men's clothing,earned a net profit of $77,000 for 2017.The balance sheet for Guinther & Sons includes the following items:

$$\begin{array} { l r l r }
\text { Cash } & \$ 29,000 & \text { Accounts receivable } & \$ 39,000 \
\text { Inventory } & 79,000 & \text { Prepaid insurance } & 3,000 \
\text { Land } & 90,000 & \text { Accounts payable } & 21,000 \
\text { Taxes payable } & 29,000 & \text { Capital stock } & 50,000 \
\text { Retained earnings } & 97,000 & \text { Long-term notes payable } & 43,000
\end{array}$$
-Read the information for Guinther & Sons,Inc.The average current ratio for stores such as Guinther & Sons is 2.4 to 1.What does this comparison tell you about its liquidity?

Question

Guinther & Sons,Inc. ,a retailer of men's clothing,earned a net profit of $77,000 for 2017.The balance sheet for Guinther & Sons includes the following items:
 
 $$\begin{array} { l r l r } 
\text { Cash } & \$ 29,000 & \text { Accounts receivable } & \$ 39,000 \
\text { Inventory } & 79,000 & \text { Prepaid insurance } & 3,000 \
\text { Land } & 90,000 & \text { Accounts payable } & 21,000 \
\text { Taxes payable } & 29,000 & \text { Capital stock } & 50,000 \
\text { Retained earnings } & 97,000 & \text { Long-term notes payable } & 43,000
\end{array}$$  
-Read the information for Guinther & Sons,Inc.The average current ratio for stores such as Guinther & Sons is 2.4 to 1.What does this comparison tell you about its liquidity?

Quizplus · Accepted Answer

Guinther & Sons, Inc.'s current assets are $29,000 (Cash) + $39,000 (Accounts receivable) + $79,000 (Inventory) + $3,000 (Prepaid insurance) = $150,000. Its current liabilities are $21,000 (Accounts payable) + $29,000 (Taxes payable) = $50,000. The current ratio is $150,000 / $50,000 = 3 to 1, which is higher than the average current ratio of 2.4 to 1 for stores like Guinther & Sons, indicating it is more liquid than its competitors.

Guinther & Sons,Inc -Read the Information for Guinther & Sons,Inc