Microsoft is the leading developer of software in the world. To continue to be successful Microsoft must generate new products, which requires significant amounts of cash. The following is the current asset and current liability information from Microsoft's current balance sheets (in millions). Following the Microsoft data is the current asset and current liability information from Oracle's current balance sheets (in millions). Oracle is another major software developer. Microsoft Corporation Balance Sheets (partial) As of June 30 (in millions) Current assets Current Year Prior Year Cash and cash equivalents $ 8,669 $ 3,804 Short-term investments 77,040 73,218 Accounts receivable, net 19,544 17,486 Inventories Other 2,660 1,938 6,333 5,020 Total current assets $114,246 $101,466 Total current liabilities. $ 45,625 $ 37,417 Oracle Balance Sheets (partial) As of May 31 (in millions) Current assets Current Year Prior Year Cash and cash equivalents $17,769 $14,613 Marketable securities 21,050 17,603 Accounts receivable, net 6,087 6,049 Inventories 189 240 Other current assets 3,043 3,187 Total current assets $48,138 $41,692 Total current liabilities i $14,389 $12,872 Part 1 (Cash and Cash Equivalents) 1. What is the definition of a cash equivalent? Give some examples of cash equivalents. How do cash equivalents differ from other types of short-term investments? 2. Calculate (1) the current ratio and (2) working capital for each company for the current year and discuss your results. 3. Is it possible to have too many liquid assets? Part 2 (Accounts Receivable) Microsoft provided the following disclosure related to its accounts receivable.. Allowance for Doubtful Accounts. The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. We determine the allowance based on known troubled accounts, historical experience, and other currently available evidence. Activity in the allowance for doubtful accounts is as follows: (in millions) Balance at beginning of Charged to costs and Balance at Year Ended June 30 period expenses Write-offs end of period Two years ago $333 $115 $(59) $389 Prior year Current year 389 336 4 (57) 336 16 (51) 301 1. Compute Microsoft's accounts receivable turnover for the current year and discuss your results. Microsoft had sales revenue of $69,943 million in the current year. 2. Reconstruct the summary journal entries for the current year based on the information in the disclosure. 3. Briefly discuss how the accounting for bad debts affects the analysis in Part 2 (a)