Rainsoft Company Selected data from the financial statements are provided below:
$\begin{array}{llc}
& \underline { 2015 }& \underline { 2014 }& \underline {2013 }\
\text { Cash } &\$ 44,000 & \$ 28,000 & \$ 14,000 \
\text { AccountsReceivable } &84,000 & 32,000 & 114,400 \
\text { Inventory } &44,000 & 166,000 & 100,000 \
\text {Prepaid Expenses } &\underline {46,000} & \underline {36,000} & \underline {41.600}\
\text { Total Curent Assets } &\$ 218,000 & \$ 262,000 & \$ 270,000\
\
\text { Total Current Liabilities } &\$ 130,000 & \$ 144,000 \
\text { Net Credit Sales } &442,000 & 652,000 \
\text { Cost of Goods Sold } &336,000 & 598,000 \
\text { Net Cash Flows from Operating Activities } &32,000 & 58,000
\end{array}$
-Refer to Rainsoft Company.Which of the following statements is true regarding the company's liquidity?
A)Based on the current ratio and operating cash flow ratio,the company appears to be in a worse position to pay its current obligations at the end of 2015 compared to 2014.
B)The quick ratio decreased from 2014 to 2015.
C)The operating cash flow ratio increased from 2014 to 2015.
D)Based on the quick ratio and cash ratio,the company appears to be in a better position to pay its current obligations at the end of 2015 compared to 2014.

Question

Rainsoft Company Selected data from the financial statements are provided below:
$\begin{array}{llc}
& \underline {  2015   }& \underline {  2014  }& \underline {2013     }\
 \text { Cash } &\$ 44,000 & \$ 28,000 & \$ 14,000 \
 \text { AccountsReceivable } &84,000 & 32,000 & 114,400 \
 \text { Inventory } &44,000 & 166,000 & 100,000 \
 \text {Prepaid Expenses  } &\underline {46,000} & \underline {36,000} & \underline {41.600}\
 \text { Total Curent Assets } &\$ 218,000 & \$ 262,000 & \$ 270,000\
\
 \text { Total Current Liabilities } &\$ 130,000 & \$ 144,000 \
 \text { Net Credit Sales } &442,000 & 652,000 \
 \text { Cost of Goods Sold } &336,000 & 598,000 \
 \text { Net Cash Flows from Operating Activities } &32,000 & 58,000
\end{array}$ 
-Refer to Rainsoft Company.Which of the following statements is true regarding the company's liquidity?
A)Based on the current ratio and operating cash flow ratio,the company appears to be in a worse position to pay its current obligations at the end of 2015 compared to 2014.
B)The quick ratio decreased from 2014 to 2015.
C)The operating cash flow ratio increased from 2014 to 2015.
D)Based on the quick ratio and cash ratio,the company appears to be in a better position to pay its current obligations at the end of 2015 compared to 2014.

Quizplus · Accepted Answer

To analyze the liquidity of the company, we can look at the current ratio, quick ratio, cash ratio, and operating cash flow ratio.

A) This choice is incorrect because both the current ratio and operating cash flow ratio increased from 2014 to 2015, indicating an improvement in the company's ability to pay its current obligations.

B) This statement is incorrect because the quick ratio increased from 2014 to 2015, indicating an improvement in the company's ability to pay its current liabilities quickly.

C) This statement is correct, as the operating cash flow ratio increased from 2014 to 2015. This indicates that the company generated more cash from its operations compared to its current liabilities, which is a positive sign for the company's liquidity.

D) This statement is correct because both the quick ratio and cash ratio increased from 2014 to 2015, indicating an improvement in the company's ability to pay its current liabilities quickly and with available cash. Therefore, the company appears to be in a better position to pay its current obligations at the end of 2015 compared to 2014.

Rainsoft Company Selected Data from the Financial Statements Are Provided