Question

Question 14               1 pts

Recently the N&N Company has been having problems. As a result, its financial situation has deteriorated. N&N approached the Oro National Bank for a badly needed loan, but the loan officer insisted that the current ratio (now 0.5) be improved to at least 0.8 before the bank would even consider granting the credit. Which of the following actions would do the most to improve the ratio in the short run?

Group of answer choices

Paying off some long-term debt

Purchasing additional inventory on credit (accounts payable)

Collecting some of the current accounts receivable

Using some cash to pay off some current liabilities

Question 15          1 pts

When a balance sheet amount is related to an income statement amount in computing a ratio,

Group of answer choices

The ratio loses its historical perspective because a beginning-of-the-year amount is combined with an end-of-the-year amount.

The balance sheet amount should be converted to an average for the year.

The income statement amount should be converted to an average for the year.

Comparisons with industry ratios are not meaningful.

Question 16             1 pts

Use the following information for the next three items.

The balance sheet of Y Company showed the following:

Accounts payable	P145,000
Accounts receivable	110,000
Accrued liabilities	4,000
Cash	80,000
Income tax payable	10,000
Inventory	140,000
Marketable securities	250,000
Notes payable, short-term	85,000
Prepaid expenses	15,000

The amount of working capital for the company is

Group of answer choices

P211,000

P351,000

P336,000

P361,000

Answer 1

1. Option B Purchasing additional inventory on credit (accounts payable) when we purchase inventory on credit we are increasing both of the current assets and current liabilities but the increase makes the current ratio to improve a lot

Remaining options will reduce current ratio rather than increasing it

2. Option B The balance sheet amount should be converted to an average for the year. when we have to use average of the amount of balance in an year to compare balance sheet to income statement items

3. Working capital = Accounts Receivable + Cash + Inventory + Marketable Securities + Prepaid Expenses - Accounts payable - Accrued Liabilities - Income Tax Payable - Notes Payable

Working capital = 110000 + 80000 + 140000 + 250000 + 15000 - 145000 - 4000 - 10000 - 85000

Working capital = 351000 Option B