The most recent data from the annual balance sheets of Free Spirit Industries In

Question

The most recent data from the annual balance sheets of Free Spirit Industries Inc. and Jing Foodstuffs Inc. are as follows: Balance Sheet December 31st (Millions of dollars) Free Spirit Foodstuffs Industries Jing Free Spirit Foodstuffs Industries Inc. Inc Inc. Inc. Liabilties Current liabilities Assets Current assets Cash Accounts receivable Inventories $1,435 525 1,540 3,500 $922 Accounts payable Accruals 338 316 1,793 2,109 2,578 4,687 90 Notes payable Total current assets Net fixed assets Net plant and equipment 1,687 1,687 2,063 3,750 2,250 Total current liabilities Long-term bonds 2,750 2,750 Total debt Common equity Common stock 1,016 547 1,563 6,250 813 437 1,250 5,000 Retained earnings Total common equity Total liabilities and equity Total assets 6,250 5,000 Free Spirit Industries Inc.'s quick ratio is and its current ratio is ; Jing Foodstuffs Inc.'s quick ratio is , and its current ratio is Which of the following statements are true? Check all that apply Free Spirit Industries Inc. has less liquidity but also a greater reliance on outside cash flow to finance its short-term obligations than Jing Foodstuffs Inc.. If a company's current liabilities are increasing faster than its current assets, the company's liquidity position is weakening 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 Free Spirit Industries Inc. has a better ability to meet its short-term liabilities than Jing Foodstuffs Inc.

Explanation / Answer

Quick ratio = (Cash + account receivable)/current liabilities

Current ratio = current asset /current liabilites

Free Spirit Industries

Quick ratio = (922 + 338)/1687 = .7468

Current ratio = 2250/1687 = 1.3337

Jing FoodStuffs

Quick ratio = (1435 + 525)/2109 = .9294

Current ratio = 3500/2109 = 1.6596

Option 2 and 3 are correct one should check that options because current liabilites increase put pressure on company's liquidity similarly increase in quick ratio signifies liquidity position is strenthening due to more money in assets.

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