Use the following balance sheet for Delta Company to answer the following 4 ques
ID: 2815370 • Letter: U
Question
Use the following balance sheet for Delta Company to answer the following 4 questions.
Assets
Liabilities and owners equity
Cash 600
Accounts Payable 700
Inventory 80
Notes Payable 200
Accounts Receivable 400
Current Maturing LTD 40
Fixed assets 1500
Stock 1300
Accumulated Depreciation (90)
Retained Earnings 250
Total 2490
Total 2490
Which of the following statements is accurate in regards to Delta's financial position?
Delta's NWC suggests that solvency is a concern.
Delta's NWC suggests that the firm has a liquidity concern.
Delta's WCR suggests that the firm has a solvency concern.
None of the above.
Assets
Liabilities and owners equity
Cash 600
Accounts Payable 700
Inventory 80
Notes Payable 200
Accounts Receivable 400
Current Maturing LTD 40
Fixed assets 1500
Stock 1300
Accumulated Depreciation (90)
Retained Earnings 250
Total 2490
Total 2490
Explanation / Answer
Current assets = Cash + Inventory + Accounts receivable
= 600 + 80 + 400
= $1080
Current liabilities = Accounts payable + Notes payable + Current maturing LTD
= 700 + 200 + 40
= $940
Net working capital = Current assets - Current liabilities
= 1080 - 940
= $140
Current ratio = Current assets/current liabilities
= 1080/940
= 1.15
Since current ratio is less than 2:1 ( or the net working capital is less than the amount of current liabilities), hence Delta's NWC suggests that the firm has a liquidity concern.
Hence, correct option is (b)
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