Measures of Liquidity
Some of the accounts appearing in the year-end financial statements of Glaven, Inc., appear below. This list includes all of the company’s current assets and current liabilities.
Sales | $2,500,000 |
Accumulated depreciation: equipment | 180,000 |
Notes payable (due in 120 days) | 85,000 |
Retained earnings | 240,000 |
Cash | 61,000 |
Capital stock | 250,000 |
Marketable securities | 175,000 |
Accounts payable | 105,000 |
Mortgage payable (due in 20 years) | 650,000 |
Salaries payable | 7,200 |
Dividends | 20,000 |
Income taxes payable | 14,400 |
Accounts receivable | 217,000 |
Inventory | 195,000 |
Unearned revenue | 15,000 |
Unexpired insurance | 8,000 |
Instructions
a. Prepare a schedule of the company’s current assets and current liabilities. Select the appropriate items from the above list.
b. Compute the current ratio and the amount of working capital. Explain how each of these measurements is computed. State, with reasons, whether you consider the company to be in a strong or weak current position.
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