Question
In: Finance
Current Liabilities and Ratios Several accounts that appeared on Spring's 2017 balance sheet are as follows:...
Current Liabilities and Ratios
Several accounts that appeared on Spring's 2017 balance sheet are as follows:
| Accounts Payable | $74,000 | Equipment | $950,000 | ||
| Marketable Securities | 40,000 | Taxes Payable | 15,000 | ||
| Accounts Receivable | 35,600 | Retained Earnings | 250,000 | ||
| Notes Payable, 12%, due in 60 days | 20,000 | Inventory | 165,000 | ||
| Capital Stock | 1,150,000 | Allowance for Doubtful Accounts | 20,000 | ||
| Salaries Payable | 10,000 | Land | 600,000 | ||
| Cash | 65,000 |
Required:
1. Prepare the Current Liabilities section of Spring's 2017 balance sheet.
| Spring | |
| Partial Balance Sheet | |
| As Of December 31, 2017 | |
| Current liabilities: | |
| $ | |
| Total current liabilities | $ |
2. Compute Spring's working capital.
$_____________
3. Compute Spring's current ratio. Round your answer to one decimal place.
______________ : 1
What does this ratio indicate about Spring’s condition?
It seems that Spring has (Sufficient/Insufficient) ___________ current assets to meet its short-term obligations.
Solutions
Expert Solution
1) Current Liabilities are short-term
obligations which are expected to be paid or settled with one
year.
Partial Balance Sheet As
of December 31,2017
| Current Liabilities : | $ |
| Accounts Payable | $74,000 |
| Notes Payable | $20,000 |
| Salaries Payable | $10,000 |
| Tax Payable | $15,000 |
| Total Current Liabilities | $119,000 |
2) Working Capital represents the difference between company's current assets and its current liabilities.
Working Capital = Current Assets (Note a) -
Current Liabilities
= $285,600 - $119,000
= $166,600
Note a : Current Assets are cash and other assets that can be converted into cash within a year
| Marketable Securities | $40,000 |
| Net Accounts Receivable ($35,600 - $20,000) | $15,600 |
| Cash | $65,000 |
| Inventory | $165,000 |
| Total Current Assets | $285,600 |
Allowance for Doubtful Accounts is a contra-asset account which is deducted from Accounts Receivable.
3) Current Ratio is a liquidity ratio which measures the company's abilitiy to meet its short-term obligations.
Current Ratio = Current Assets / Current Liabilities
= $285,600 / $119,000
= 2.4 :
1
Spring has 2.4 times more current assets current
Liabilities.
Ans : It seems that spring has Sufficient current assets to
meet its short-term obligations.
jeff jeffy answered 1 year agoRelated Solutions
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