The Following Information Is Available for Trico and Its Two

question 40

Essay

The following information is available for Trico and its two main competitors in the industry (Duco and Unico):
$$\begin{array} { | l | r | r | r | } \hline & \text { Trico } & \text { Duco } & \text { Unico } \\\hline \text { Cash } & \$ 9,800 & \$ 10,500 & \$ 26,500 \\\hline \text { Short-term investrments } & 6,400 & 8,200 & 12,500 \\\hline \text { Accounts receivable } & 12,500 & 8,500 & 14,350 \\\hline \text { Merchandise inveritory } & 3 0 , 1 5 0& 40,000 & 40,150 \\\hline \text { Prepaid expense } & 900 & 6,750 & 2 , 4 5 0\\\hline \text { Accounts payable } & 19,400 & 13,750 & 2 6 , 8 0 0 \\\hline \text { Salaries payable } & 1,200 & 3,500 & 6,250 \\\hline \text { Other current payables } & 600 & 1,200 &2 , 1 5 0 \\\hline\end{array}$$
The industry standard for the current ratio is 1.8 and the industry standard for the acid-test ratio is 1.
Required:
1.Calculate the current ratio and acid-test ratio for each firm.
2.Rank the firms in decreasing order of liquidity.
3.Comment on Trico's relative liquidity position.

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Definitions:

Intra-entity Inventory

Intra-entity Inventory pertains to the goods sold between divisions or entities within the same parent company, affecting consolidated financial statements.

Markup

The difference between the cost of a good or service and its selling price, expressed as a percentage over the cost.

Equity Method

An accounting technique used to record investments in associated companies, where the investment is initially recorded at cost and adjusted thereafter for the investor's share of the investee's profits or losses.