The following selected information (in thousands) was taken from Fruition Collections Ltd.'s December 31 statement of financial
Question:
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Instructions
(a) Calculate the current ratio for each of the two years.
(1) Based only on this information, would you say that the company's liquidity is strong or weak?
(2) What additional information should you request to complete your assessment of liquidity?
(b) Suppose that Fruition Collections used $1,000,000 of its cash to pay off $1,000,000 of its accounts payable. Would this transaction change the current ratio?
(c) At December 31, 2012, Fruiti on Collections had an unused operating line of credit of $4million. Does this information affect the assessment of the company's short-term liquidity that you made in (a) above?
A line of credit (LOC) is a preset borrowing limit that can be used at any time. The borrower can take money out as needed until the limit is reached, and as money is repaid, it can be borrowed again in the case of an open line of credit. A LOC is...
Step by Step Answer:
in thousands a Current ratio ...View the full answer
Financial Accounting Tools for Business Decision Making
ISBN: 978-1118024492
5th Canadian edition
Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso, Barbara Trenholm, Wayne Irvine
