Part I: Multiple Choice

1. ABC Company reports Working Capital of $4,500,000. The current ratio is 1.5 to 1.00. Which statement is true?

1. Current Assets are less than Current Liabilities
2. Current Liabilities are $9,000,000
3. Current Assets are $6,750,000
4. Working Capital is a measure of long-term solvency

2. The account least likely to be a current liability is:

1. Accrued expense payable
2. Bonds payable
3. Accounts payable
4. Income taxes payable

3. The best example of a contingent liability is:

1. the refund from a supplier of inventory for purchasing a certain volume of inventory
2. the amount of damages the company expects to pay for a patent infringement lawsuit
3. the amount owed to a supplier for a purchase of inventory
4. the offer of employment to the next Vice President of Marketing

4. ABC Company borrowed $10,000,000 on a short-term basis. The loan originated on August 1, Year 5 and will be paid back on May 31, Year 6. The annual interest rate is 11%. Use simple interest. What is the interest expense in Year 5 and Year 6, respectively?

1. $458,333 and $458,333
2. $458,333 and $550,000
3. $550,000 and $1,100,000
4. $366,667 and $550,000

5. Which statement about current liabilities is true?

1. Current liabilities have no place on a classified balance sheet.
2. Current liabilities should be combined with current assets to show working capital on the balance sheet.
3. Bonds payable could never be current liabilities.
4. Current liabilities should be paid off within one year.

6. The account, Deferred Income Taxes, could be the result of:

a. using a declining balance method of depreciation for tax and a straight-line method for books

b. financing the purchase of a factory with a mortgage payable

c. a LIFO conversion for purposes of financial statement analysis

d. all of the above are possible reasons for Deferred Income Taxes

Part II: Accounts Payable Turnover and Days in Accounts Payable

Find the most recent 10-K for The Toro Company. The calculations below are for the most recent-year end.

1. What is the accounts payable turnover ratio? Show the formula, the amounts, and all the steps (including the amount for any average) in the calculation. Also remember to show the scale (in millions, thousands, whatever the amounts are).

2. What is the result for the days in accounts payable? Again, show all the steps in the calculation.

3. Assume Toro has a stated payment policy, of paying its suppliers within 60 days. (This is just an assumption). Given your results above, what would you say about Toros compliance, or lack thereof, with its stated payment policy? Would you make any suggestions to Toro? Is so, what would those suggestions be?