18. The following information is summarized from the balance sheets of Gear Mart

Question

18. The following information is summarized from the balance sheets of Gear Mart Corporation and Function Junction, Inc. at December 31, 2016: Gear Mart Function Junction Current Assets: Cash and cash equivalents Short-term investments Accounts receivable, net Notes receivable, net Other current assets 340,800 12,000 377,000 36,300 207400 $973,500 $100,200 7,600 42,000 18,000 -40,000 $207,800 Total current assets Current liabilities Other liabilities Stockholders' equity $ 860,900 5,000,400 2,400,300 $150,000 300,500 800,700 1) Using the information provided above, compute the following for each company at December 31, 2017: A. Working capital B. Current ratio C. Acid-test ratio Comment briefly on the liquidity of each of these two companies. Which company appears to be the most liquid? 2)

Explanation / Answer

1) Calculate following :

2) Company function junction is most liquid then Gear Mart company..

Gear Mart Function Junction Working capital (Current assets-current liabilities) (973500-860900)=112600 (207800-150000)=57800 Current ratio (973500/860900)=1.13 (207800/150000)=1.39 Acid test ratio (973500-207400)/860900=0.89 (207800-40000)/150000=1.12

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