A liquid asset can be converted to cash quickly without significantly impacting the asset’s value. Which of the following asset classes is generally considered to be the most liquid? Accounts receivable Cash Inventories The most recent data from the annual balance sheets of Fitcom Corporation and Zebra Paper Corporation are as follows: Balance Sheet December 31st31st (Millions of dollars) Zebra Paper Corporation Fitcom Corporation Zebra Paper Corporation Fitcom Corporation Assets Liabilities Current assets Current liabilities Cash $2,870 $1,845 Accounts payable $0 $0 Accounts receivable 1,050 675 Accruals 633 0 Inventories 3,080 1,980 Notes payable 3,586 3,375 Total current assets $7,000 $4,500 Total current liabilities $4,219 $3,375 Net fixed assets Long-term bonds 5,156 4,125 Net plant and equipment 5,500 5,500 Total debt $9,375 $7,500 Common equity Common stock $2,031 $1,625 Retained earnings 1,094 875 Total common equity $3,125 $2,500 Total assets $12,500 $10,000 Total liabilities and equity $12,500 $10,000 Fitcom Corporation’s current ratio is , and its quick ratio is ; Zebra Paper Corporation’s current ratio is , and its quick ratio is . Note: Round your values to four decimal places. Which of the following statements are true? Check all that apply. Fitcom Corporation has less liquidity but also a greater reliance on outside cash flow to finance its short-term obligations than Zebra Paper Corporation. A current ratio of 1 indicates that the book value of the company’s current assets is equal to the book value of its current liabilities. If a company has a quick ratio of less than 1 but a current ratio of more than 1 and if the difference between the two ratios is large, then the company depends heavily on the sale of its inventory to meet its short-term obligations. Fitcom Corporation has a better ability to meet its short-term liabilities than Zebra Paper Corporation. An increase in the current ratio over time always means that the company’s liquidity position is improving.

A liquid asset can be converted to cash quickly without significantly impacting the asset’s value. Which of the following asset classes is generally considered to be the most liquid? Accounts receivable Cash Inventories The most recent data from the annual balance sheets of Fitcom Corporation and Zebra Paper Corporation are as follows: Balance Sheet December 31st31st (Millions of dollars) Zebra Paper Corporation Fitcom Corporation Zebra Paper Corporation Fitcom Corporation Assets Liabilities Current assets Current liabilities Cash $2,870 $1,845 Accounts payable $0 $0 Accounts receivable 1,050 675 Accruals 633 0 Inventories 3,080 1,980 Notes payable 3,586 3,375 Total current assets $7,000 $4,500 Total current liabilities $4,219 $3,375 Net fixed assets Long-term bonds 5,156 4,125 Net plant and equipment 5,500 5,500 Total debt $9,375 $7,500 Common equity Common stock $2,031 $1,625 Retained earnings 1,094 875 Total common equity $3,125 $2,500 Total assets $12,500 $10,000 Total liabilities and equity $12,500 $10,000 Fitcom Corporation’s current ratio is , and its quick ratio is ; Zebra Paper Corporation’s current ratio is , and its quick ratio is . Note: Round your values to four decimal places. Which of the following statements are true? Check all that apply. Fitcom Corporation has less liquidity but also a greater reliance on outside cash flow to finance its short-term obligations than Zebra Paper Corporation. A current ratio of 1 indicates that the book value of the company’s current assets is equal to the book value of its current liabilities. If a company has a quick ratio of less than 1 but a current ratio of more than 1 and if the difference between the two ratios is large, then the company depends heavily on the sale of its inventory to meet its short-term obligations. Fitcom Corporation has a better ability to meet its short-term liabilities than Zebra Paper Corporation. An increase in the current ratio over time always means that the company’s liquidity position is improving.

Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter12: The Statement Of Cash Flows

Section: Chapter Questions

Problem 12.20MCE

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Question

A liquid asset can be converted to cash quickly without significantly impacting the asset’s value.

Which of the following asset classes is generally considered to be the most liquid?

Accounts receivable

Cash

Inventories

The most recent data from the annual balance sheets of Fitcom Corporation and Zebra Paper Corporation are as follows:

Balance Sheet December 31st31st (Millions of dollars)

	Zebra Paper Corporation	Fitcom Corporation		Zebra Paper Corporation	Fitcom Corporation
Assets			Liabilities
Current assets			Current liabilities
Cash	$2,870	$1,845	Accounts payable	$0	$0
Accounts receivable	1,050	675	Accruals	633	0
Inventories	3,080	1,980	Notes payable	3,586	3,375
Total current assets	$7,000	$4,500	Total current liabilities	$4,219	$3,375
Net fixed assets			Long-term bonds	5,156	4,125
Net plant and equipment	5,500	5,500	Total debt	$9,375	$7,500
			Common equity
			Common stock	$2,031	$1,625
			Retained earnings	1,094	875
			Total common equity	$3,125	$2,500
Total assets	$12,500	$10,000	Total liabilities and equity	$12,500	$10,000

Fitcom Corporation’s current ratio is , and its quick ratio is ; Zebra Paper Corporation’s current ratio is , and its quick ratio is . Note: Round your values to four decimal places.

Which of the following statements are true? Check all that apply.

Fitcom Corporation has less liquidity but also a greater reliance on outside cash flow to finance its short-term obligations than Zebra Paper Corporation.

A current ratio of 1 indicates that the book value of the company’s current assets is equal to the book value of its current liabilities.

If a company has a quick ratio of less than 1 but a current ratio of more than 1 and if the difference between the two ratios is large, then the company depends heavily on the sale of its inventory to meet its short-term obligations.

Fitcom Corporation has a better ability to meet its short-term liabilities than Zebra Paper Corporation.

An increase in the current ratio over time always means that the company’s liquidity position is improving.

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