Question

The following information is listed on Beck’s Bicycles, Inc.’s balance sheet as of 12/30/2015.

Assets		Liabilities
Current Assets		Current Liabilities
Cash	$3,000,000.00	Accts. Payable	$12,000,000.00
Accts. Receivables	2,000,000.00
Inventory	9,000,000.00
Total Current Assets	$14,000,000.00	Total Current Liabilities	$12,000,000.00
Fixed Assets	$125,000,000.00	Long-Term Debt	$75,000,0000.00

If you were one of Beck’s accountants and you were asked to evaluate if the firm has enough funds to pay its bills that are coming due in the next few months, how would you respond?

a) Beck’s has enough funds to pay bills that are coming due because it has $3 million in cash assets.

b) Beck’s does not have enough funds to pay bills that are coming due because it has $3 million in cash, and it owes $87,000,000 in the next few months.

c) Beck’s will have enough funds to pay bills coming due in the next few months, as long as it continues to collect money that others owe Beck’s and it continues to turn its inventory and sell bikes.

d) Beck’s will not have enough funds to pay bills coming due in the next few months because it cannot depend on selling inventory to pay those bills. It must depend only on cash and credit sales already produced. Total cash and credit sales are only $5 million.

Answer 1

Total current assets = $14,000,000.00

Total current liabilities = $12,000,000.00

Current ratio = Total current assets/Total current liabilities = $14,000,000.00/$12,000,000.00 = 1.17

Thus Beck's has $1.17 of current assets for each $1.00 of current liabilities on its balance sheet.

Thus, Beck's will have enough funds to pay bills coming due in the next few months, as long as it continues to collect money that others owe Beck's and it continues to turn its inventory and sell bikes. Option c is the right choice