Moore Company Has The Following Partial List Of Account Bala

Moore Company Has The Following Partial List Of Account Balance

Moore Company has the following partial list of account balances at year end: Accounts payable $1,800; Accounts receivable $1,600; Bonds payable (due in 5 years) $80,000; Cash $4,000; Equipment (net) $10,000; Land $25,000; Notes payable (due in 6 months) $1,200; Salaries payable $800; Cost of Goods Sold $3,200.

Paper For Above instruction

The financial analysis of Moore Company requires calculating key liquidity and turnover ratios based on its current account balances. These ratios provide insight into the company's short-term financial health and operational efficiency. The calculations involve determining the current ratio, working capital, the impact of utilizing cash to settle accounts payable, and the payable turnover ratio.

Part A: Computing the Current Ratio

The current ratio measures the company's ability to meet its short-term obligations using its short-term assets. It is calculated as:

Current Ratio = Current Assets / Current Liabilities

From the provided balances, the current assets include cash ($4,000), accounts receivable ($1,600), and any current liabilities include accounts payable ($1,800), notes payable in 6 months ($1,200), and salaries payable ($800). Bonds payable are long-term liabilities and are excluded from current liabilities.

Therefore, current assets = $4,000 + $1,600 = $5,600

Current liabilities = $1,800 + $1,200 + $800 = $3,800

Calculating the current ratio:

Current Ratio = $5,600 / $3,800 ≈ 1.47

Part B: Determining the Working Capital

Working capital reflects the company's short-term liquidity and is calculated as:

Working Capital = Current Assets – Current Liabilities

Using the balances above:

Working Capital = $5,600 – $3,800 = $1,800

This positive working capital indicates that Moore Company has sufficient short-term assets to cover its short-term liabilities.

Part C: Impact of Paying Accounts Payable Using Cash

1. Computing the new current ratio after paying off accounts payable with cash

Assuming cash is used to settle the accounts payable of $1,800, the balances will adjust as follows:

• Cash decreases by $1,800: $4,000 – $1,800 = $2,200
• Accounts payable decreases by $1,800: $1,800 – $1,800 = $0

Remaining current assets: Cash = $2,200; Accounts receivable = $1,600; Total = $3,800

Remaining current liabilities: Accounts payable = $0; Notes payable (due in 6 months) = $1,200; Salaries payable = $800; Total = $2,000

New current ratio:

Current Ratio = $3,800 / $2,000 = 1.9

2. Computing the new working capital after paying off accounts payable

Working capital is now:

$3,800 (current assets) – $2,000 (current liabilities) = $1,800

The working capital remains unchanged at $1,800, as the reduction in cash and accounts payable offset each other.

Part D: Computing the Payable Turnover Ratio

The payable turnover ratio measures how many times a company pays off its accounts payable during a period. It is calculated as:

Payable Turnover = Cost of Goods Sold / Average Accounts Payable

Since only the ending accounts payable balance is provided, and there's no prior balance, we assume the initial accounts payable is the current balance ($1,800). For purposes of this analysis, using the latest balance as the average is acceptable.

Calculating payable turnover:

Payable Turnover = $3,200 / $1,800 ≈ 1.8

Rounding to one decimal place results in 1.8 times.

Conclusion

Moore Company's liquidity positions reveal a healthy current ratio of approximately 1.47, indicating adequate short-term liquidity. After paying off accounts payable with cash, the current ratio improves to 1.9, reflecting increased liquidity. The working capital remains constant at $1,800 regardless of the payments, demonstrating the company's stable short-term financial buffer. The payable turnover ratio of 1.8 times suggests the company is settling its payables nearly twice within the period, which is within typical operational ranges for manufacturing firms. These ratios collectively depict Moore Company as financially sound with efficient accounts payable management.

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