MINDTAP From Cengage h 04: Assignment-Analysis of Financial Statements Balance S
ID: 2809204 • Letter: M
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MINDTAP From Cengage h 04: Assignment-Analysis of Financial Statements Balance Sheet December 31st (Millions of dollars) ing Free Spirit Foodstuffs Industries Corporation Corporation Jing Free Spirit Foodstuffs Industries Corporation Corporation Assets Current assets Liabilities Current liabilities Cash Accounts receivable Inventories $2,296 840 2,464 5,600 $1,476 Accounts payable $0 506 2,869 3,375 4,125 7,500 540 Accruals 1,584 Notes payable 3,600 Total current liabilities Total current assets Net fixed assets Net plant and equipment 2,700 2,700 3,300 6,000 Long-term bonds 4,400 4,400 Total debt Common equity Common stock 1,625 875 2,500 10,000 1,300 700 2,000 8,000 Retained earnings Total common equity Total liabilities and equity Total assets 10,000 8,000 Free Spirit Industries Corporation's current ratio is ratio is , and its quick ratio is : Jing Foodstuffs Corporation's current , and its quick ratio is Note: Round your values to four decimal placesExplanation / Answer
Answer a.
Jing Foodstuffs Corporation:
Current Ratio = Current Assets / Current Liabilities
Current Ratio = $5,600 / $3,375
Current Ratio = 1.6593
Quick Ratio = (Cash + Accounts Receivable) / Current Liabilities
Quick Ratio = ($2,296 + $840) / $3,375
Quick Ratio = 0.9292
Free Spirit Industries Corporation:
Current Ratio = Current Assets / Current Liabilities
Current Ratio = $3,600 / $2,700
Current Ratio = 1.3333
Quick Ratio = (Cash + Accounts Receivable) / Current Liabilities
Quick Ratio = ($1,476 + $540) / $2,700
Quick Ratio = 0.7467
Answer b.
Free Spirit Industries Corporation has less liquidity but also a greater reliance on outside cash flow to finance its short-term obligations than Jing Foodstuffs Corporation.
A current ratio of 1 indicates that the book value of the company’s current assets is equal to the book value of its current liabilities.
An increase in the quick ratio over time usually means that the company’s liquidity position is improving and that the company is managing its short-term assets well.
An increase in the current ratio over time always means that the company’s liquidity position is improving.
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