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QUESTION 2 (16 marks) Both Bruce Company and Winne Company are in the same line of business. Selected accounts appearing in the year-end financial statements
QUESTION 2 (16 marks) Both Bruce Company and Winne Company are in the same line of business. Selected accounts appearing in the year-end financial statements of the two companies are listed below. This list includes ALL the company's current assets and current liabilities. Bruce Winnie Company Company Equipment Notes payable (due in 90 days) Cash Capital Short-term investments Accounts payable Prepaid rent Inventory Salaries payable Accounts receivable Taxes payable Interest payable Notes payable (due in 3 years) $ 79,000 81,000 45,000 200,000 123,000 113,000 9,000 382,000 93,000 83,000 54,000 26,000 80,000 $ 120,000 76,000 153,000 560,000 327,000 125,000 7,000 202,000 82,000 79,000 63,000 34,000 25,000 Required: (Show all calculations and round ALL answers to 2 decimal places.) a. (8 marks) Compute for each company the following ratios: (i) Working capital (ii) Current ratio (iii) Acid-test ratio b. Both Bruce Company and Winne Company have applied for a short-term loan in the amount of $100,000 for five months from your bank. Assume you were the manager of the bank and the bank can only accept one loan application from either Bruce Company or Winnie Company. After comparing the ratios of both companies in (a), which loan application would you approve? Explain. (8 marks)
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