Please Refer to the Following Data Using the "Rule of Thumb" Guidelines,what Conclusion Could You Draw

question 3

Multiple Choice

Please refer to the following data: $$\begin{array} { | l | r | r | } \hline & { \text { Debit } } & { \text { Credit } } \\\hline \text { Cash } & \$ 16,000 & \\\hline \text { Accounts receivable } & 2,800 & \\\hline \text { Prepaid insurance } & 800 & \\\hline \text { Land } & 40,000 & \\\hline \text { Building } & 50,000 & \\\hline \text { Accumulated depreciation } & & \$ 32,000 \\\hline \text { Accounts payable } & & 2,200 \\\hline \text { Wages payable } & & 4,000 \\\hline \text { Notes payable-short term } & & 2,300 \\\hline\end{array}$$ Using the "rule of thumb" guidelines,what conclusion could you draw?

• A) This business faces a liquidity problem, and may have trouble paying off its current liabilities with its current assets.
• B) This business has does not have enough total assets to meet its total obligations.
• C) This business has a very good current ratio, but the debt ratio indicates long-term liquidity problems.
• D) This business should have no difficulties paying off its liabilities.

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Definitions:

Ten-Year Period

A specific duration of time that encompasses ten consecutive years.

Desired Sum

The target amount of money or financial value aimed to be achieved within a specific period or under certain conditions.

Invested

The act of allocating money or capital to an endeavor with the expectation of obtaining an additional income or profit.

Annuity

A series of identical cash flows.