After Reporting a Profit of $20,000 for the Year,a Certain

question 22

Essay

After reporting a profit of $20,000 for the year,a certain company reported the following items on its balance sheet at December 31,2013:
$\begin{array}{ll}\text { Cash } & \$ 225,000 \\\text { Accounts receivable } & 110,000 \\\text { Inventory } & 80,000 \\\text { Prepaid insurance } & 5,000 \\\text { Land } & 100,000 \\\text { Building } & 280,000 \\\text { Accounts payable } & 60,000 \\\text { Salaries payable } & 10,000 \\\text { Capital stock } & 500,000 \\\text { Retained eamings } & 230,000\end{array}$
A) Calculate the current ratio and determine the amount of working capital.
B) Beyond the information provided in your answers to " $A$ ," "What does the composition of the current assets tell you about the company's liquidity?
C) What other information would one need to fully access liquidity?

• A) Calculate the current ratio and determine the amount of working capital.
• B) Beyond the information provided in your answers to " \( A \)," "What does the composition of the current assets tell you about the company's liquidity?
• C) What other information would one need to fully access liquidity?

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Definitions:

Government Purchases

Expenditures by the government on goods and services that directly increase the economy's productive capacity.

Autonomous Net Taxes

Taxes that are not influenced by the level of economic activity, such as fixed taxes.

Government Purchases

Government purchases refer to spending by government entities on goods and services that directly contribute to the economy's aggregate demand.

Aggregate Demand

The total demand for all goods and services within a particular market or economy.