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223_Hwk_9_Solutions

223_Hwk_9_Solutions - HA 223 Fall 2006 Homework 9 Solution...

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HA 223 – Fall 2006 – Homework 9 – Solution M9–2. November 1 Cash (+A) ........................................................................ 100,000 Note payable (+L) ........................................................ 100,000 December 31 Interest Expense (+E, -SE) .............................................. 2,000 Interest Payable (+L) ................................................... 2,000 E9–1. Req. 1 (a) Current assets ................................................................. $170,100 Current liabilities: Accounts payable ........................................................ $60,000 Income taxes payable .................................................. 12,000 Liability for withholding taxes ....................................... 3,000 Rent revenue collected in advance ............................. 14,000 Wages payable ............................................................ 7,800 Property taxes payable ................................................ 2,000 Note payable, 10% (due in 6 months) ......................... 10,000 Interest payable ........................................................... 400 (109,200) Working capital ................................................................ $ 60,900 (b) Current ratio: ($170,100 ÷ $109,200) = 1.56 . Working capital is critical for the efficient operation of a business. Current assets include cash and assets that will be collected in cash within one year or the normal operating cycle of the company. A business with insufficient working capital may not be able to pay its short- term creditors on a timely basis. The current ratio is a measure of liquidity. It helps analysts assess a company’s ability to meet its short-term obligations. Req. 2 No, contingent liabilities are reported in the notes, not on the balance sheet.
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