Question

The following accounting information exists for the Aspen and Willow companies:

	Aspen			Willow
Cash	$	12,000		$	22,000
Wages payable		20,000			22,500
Merchandise inventory		29,805			58,400
Building		40,000			90,000
Accounts receivable		38,480			31,000
Long-term notes payable		90,000			100,000
Land		50,000			60,000
Accounts payable		38,000			45,500
Sales revenue		240,000			290,000
Expenses		190,000			230,000

Required
a-1. Determine the amount of current assets and current liabilities for each company.
a-2. Compute the current ratio for each company.
b. Assuming that all assets and liabilities are listed above, compute the debt-to-assets ratios for each company.
c-1. Determine which company has the greater financial risk in the short term.
c-2. Determine which company has the greater financial risk in the long term.

Determine the amount of current assets and current liabilities for each company.

	Aspen Willow Current assets $12,000 $22,000 Current liabilities

Compute the current ratio for each company. (Round your answers to 2 decimal places.)

	Current Ratio Aspen to 1 Willow    to 1

Assuming that all assets and liabilities are listed above, compute the debt-to-assets ratios for each company. (Round your answers to 1 decimal place.)

	Debt to Assets Ratio Aspen % Willow %

Determine which company has the greater financial risk in the short term.

	Determine which company has the greater financial risk in the short term.

Determine which company has the greater financial risk in the long term.

	Determine which company has the greater financial risk in the long term.

Answer 1

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Aspen and Willow companies:
Balance Sheet	Aspen	Willow		Answer a-2	Aspen	Willow
Assets				Current Ratio	1.38	1.64
Current Assets				Current Assets/Current Liabilities
Cash	12,000.00	22,000.00
Accounts Receivable	38,480.00	31,000.00		Answer b
Merchandise Inventory	29,805.00	58,400.00		Debt-to-assets ratio	0.87	0.64
Total Current Assets	80,285.00	111,400.00	Answer a-1	Total Liabilities/ Total Assets
Building	40,000.00	90,000.00
Land	50,000.00	60,000.00		Answer c-1
Fixed assets, net	90,000.00	150,000.00		Current ratio of Aspen is less than Willow so Aspen has the greater financial risk in the short term.
Total Assets	170,285.00	261,400.00
				Answer c-2
Liabilities & Stockholders' Equity				Debt-to-assets ratio of Aspen is higher than Willow so Aspen has the greater financial risk in the long term.
Liabilities
Current Liabilities
Accounts payable	38,000.00	45,500.00
Wages payable	20,000.00	22,500.00
Current Liabilities	58,000.00	68,000.00	Answer a-1
Long Term Note payable	90,000.00	100,000.00
Total Liabilities	148,000.00	168,000.00