ANSWERS TO QUESTIONS
30. The acid-test ratio and the current ratio are both measures of the short-term debt-paying
ability of the company. The acid-test ratio excludes inventories and prepaid expenses on the
basis that these assets are difficult to liquidate in an emergency. The current ratio and the
acid-test ratio are similar in that both numerators include cash, short-term investments, and
net receivables, and both denominators include current liabilities.
SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 13-15
Premium Expense .............................................................
Premium Liability .....................................................
*UPC codes expected to be sent in (30% X 1,200,000) ...
UPC codes already redeemed .........................................
Estimated future redemptions ........................................
Cost of estimated claims outstanding
(240,000 ÷ 3) X ($1.10 + $0.60 – $0.50) .........................
96,000
96,000*
360,000
120,000
240,000
$ 96,000
SOLUTIONS TO PROBLEMS
PROBLEM 13-8
Inventory of Premiums ....................................................
Cash.........................................................................
(To record purchase of 40,000 puppets at
$1.50 each)
60,000
60,000
Cash .................................................................................. 1,800,000
Sales Revenue ........................................................
1,800,000
(To record sales of 480,000 boxes at
$3.75 each)
Premium Expense ............................................................
Inventory of Premiums ...........................................
[To record redemption of 115,000 coupons.
Computation: (115,000 ÷ 5) X $1.50 = $34,500]
34,500
Premium Expense ............................................................
Premium Liability ....................................................
[To record estimated liability for premium
claims outstanding at December 31, 2013.]
23,100
34,500
23,100
Computation: Total coupons issued in 2013 .................
480,000
Total estimated redemptions (40%) ................................
Coupons redeemed in 2013 ............................................
Estimated future redemptions ........................................
192,000
115,000
77,000
Cost of estimated claims outstanding (77,000 ÷ 5) X $1.50 = $23,100