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:

Acquisition

The process of obtaining control of another corporation, either through purchase or merger.

Shares of Stock

Ownership units in a corporation that represent a claim on part of the corporation's assets and earnings.

Corporation

A corporation is a legal entity that is separate and distinct from its owners, offering limited liability, easy transferability of shares, and potential for raising capital.

Federal Statutes

Laws enacted by the federal government of a country.