Corporation A and B both have a current ratio of 2:1. Corporation A has Cash of...
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Corporation A and B both have a current ratio of 2:1. Corporation A has Cash of $20,000, Inventories of $10,000. Corporation B has Cash of $2,000 and Inventories of $28,000. Which of the following statements is true?
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Both companies have current liabilities of $10,000
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Corporation A is more liquid than Corporation B
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Both companies have the same liquidity position
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None of the above
Homework Answers
Correct answer----Corporation A is more liquid than Corporation B.
.
Inventory is not considered as a liquid asset. The value of liquid assets decides which company is more liquid.
Company A has high value of liquid asset (which is cash) in comparison to Company B.
Current liabilities of both companies are $15000
| Company A | Company B | |
| Current ratio | 2: 1 | 2: 1 |
| Total Current assets | $ 30,000.00 | $ 30,000.00 |
| Current liabilities (total current assets/2) | $ 15,000.00 | $ 15,000.00 |
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Corporation A and B both have a current ratio of 2:1.
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