Question

1. The chief financial officer (CFO) of Carla Vista Corporation requested that the accounting department prepare a preliminary balance sheet on December 30, 2022, so that the CFO could get an idea of how the company stood. He knows that certain debt agreements with its creditors require the company to maintain a current ratio of at least 2:1. The preliminary balance sheet is as follows.

Carla Vista Corp. Balance Sheet December 30, 2022
Current assets						Current liabilities
Cash		$27,000				Accounts payable		$20,760
Accounts receivable		31,800				Salaries and wages payable		11,800		$32,560
Prepaid insurance		6,800		$65,600		Long-term liabilities
Equipment (net)				200,060		Notes payable				81,800
Total assets				$265,660		Total liabilities				114,360
						Stockholders’ equity
						Common stock		100,000
						Retained earnings		51,300		151,300
						Total liabilities and stockholders’ equity				$265,660

a. Calculate the current ratio and working capital based on the preliminary balance sheet. (Round current ratio to 2 decimal places, e.g. 0.50 : 1.)

b. Based on the results above, the CFO requested that $20,760 of cash be used to pay off the balance of the Accounts Payable account on December 31, 2022.

Calculate the new current ratio and working capital after the company takes these actions. (Round current ratio to 2 decimal places, e.g. 0.50 : 1.)

Current ratio		enter current ratio rounded to 2 decimal places	:1
Working capital		$enter working capital in dollars

2. Comparative financial statement data for Blossom Corporation and Pina Corporation, two competitors, appear below. All balance sheet data are as of December 31, 2022.

		Blossom Corporation		Pina Corporation
		2022		2022
Net sales		$2,232,000		$768,800
Cost of goods sold		1,457,000		421,600
Operating expenses		350,920		121,520
Interest expense		11,160		4,712
Income tax expense		105,400		44,640
Current assets		460,561		192,317
Plant assets (net)		659,680		173,263
Current liabilities		82,243		41,808
Long-term liabilities		134,540		50,448

(a)

Compute working capital and the current ratios for each company for 2022. (Round current ratio to 1 decimal place, e.g. 0.7 : 1.)

		Working Capital		Current Ratio
Blossom Corporation		$enter working capital in dollars		enter current ratio rounded to 1 decimal place	:1
Pina Corporation		$enter working capital in dollars		enter current ratio rounded to 1 decimal place	:1

3. Listed below are assets and liabilities of Oriole Corporation for the years 2021 and 2022. Each is listed in alphabetical order.

Assets		2022		2021		Liabilities		2022		2021
Accounts receivable		$2,200		$2,900		Accounts payable		$4,400		$3,500
Cash		1,400		1,728		Bonds payable		31,500		26,500
Equipment (net)		46,500		52,500		Notes payable (current)		2,700		2,100
Inventory		4,200		4,700		Notes payable (long-term)		5,500		4,500
Land		24,500		24,500
Supplies		933		1,200
Total assets		$79,733		$87,528		Total liabilities		$44,100		$36,600

Oriole reported net income of $50,500 for 2022 and $44,500 for 2021.

a. Compute total current assets and total current liabilities for each year.

b. Compute working capital and the current ratio for each year. (Round current ratio to 2 decimal places, e.g. 52.75.)

		2022			2021
Working capital		$enter working capital in dollars			$enter working capital in dollars
Current ratio		enter current ratio rounded to 2 decimal places	: 1		enter current ratio rounded to 2 decimal places	: 1

Answer 1

1-a) Current ratio= Current assets/Current liabilities

= $65600/32560= 2.01

Working capital= Current assets-Current liabilities

= $65600-32560= $33040

Current ratio		2.01	:1
Working capital		$33040

b) When the company pay off the balance of the Accounts payable account for $20760. The current assets and current liabilities of the company will decreases.

New current assets= $65600-20760= $44840

New current liabilities= $32560-20760= $11800

Current ratio= Current assets/Current liabilities

= $44840/11800= 3.8

Working capital= Current assets-Current liabilities

= $44840-11800= $33040

Current ratio		3.8	:1
Working capital		$33040

2. Working capital= Current assets-Current liabilities

Blossom corporation= $460561-82243= $378318

Pina corporation= $192317-41808= $150509

Current ratio= Current assets/Current liabilities

Blossom corporation= $460561/82243= 5.6

Pina corporation= $192317/41808= 4.6

		Working Capital		Current Ratio
Blossom Corporation		$378318		5.6	:1
Pina Corporation		$150509		4.6	:1

3-a) Current assets= Accounts receivable+Cash+Inventory+Supplies

2022= $2200+1400+4200+933= $8733

2021= $2900+1728+4700+1200= $10528

Current liabilities= Accounts payable+Notes payable (current)

2022= $4400+2700= $7100

2021= $3500+2100= $5600

b) Working capital= Current assets-Current liabilities

2022= $8733-7100= $1633

2021= $10528-5600= $4928

Current ratio= Current assets/Current liabilities

2022= $8733/7100= 1.23

2021= $10528/5600= 1.88

		2022			2021
Working capital		$1633			$4928
Current ratio		1.23	: 1		1.88	: 1

NOTE:- For any problem regarding the answer please ask in the comments section.