(Learning Objective 5: Using the acid test ratio and days’ sales in receivables to evaluate a company) Bullock & Masters, Inc., reported the following items at December 31, 20X6 (amounts in millions):
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Balance Sheets (Summarized) |
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Year End |
Year End |
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20X6 |
20X5 |
20X6 |
20X5 |
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Current assets: |
Current liabilities: |
$ 48 |
$ 48 |
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Cash |
$137 |
$136 |
Accounts payable |
158 |
277 |
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Marketable securities |
30 |
83 |
Other current liabilities |
11 |
10 |
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Accounts receivable, net |
37 |
42 |
Long term liabilities |
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Inventories |
29 |
44 |
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Other current assets |
19 |
59 |
Stockholders’ equity |
172 |
246 |
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Long term assets |
137 |
217 |
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Total assets |
$389 |
$581 |
Total liabilities and equity |
$389 |
$581 |
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Income Statement (partial): |
20X6 |
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Sales revenue |
$450 |
Compute Bullock & Masters’ (a) acid test ratio and (b) days’ sales in average receivables for 20X6. Evaluate each ratio value as strong or weak. Bullock & Masters sells on terms of net 30 days.