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ch 9_Solutions

ch 9_Solutions - M9-2 Cash Notes Payable short-term...

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M9-2) Cash 100,000 Notes Payable, short-term 100,000 Interest Expense 3,429 Interest payable 3,429 E9-1) 1) Working capital = 170,100 – 109,200 = 60,900 Current ratio = (695,100 – 525,000) / (60,000 + 12,000 + 3,000 + 14,000 + 7,800 + 2,000 + 10,000 + 400) = 1. 5577 Working capital is important to the managers because it has a significant impact on the health and profitability of the company. If the company has too little working capital, it would be risking its ability to meet its obligations to creditors. If the company has too much working capital then it might tie up resources in unproductive assets and incur unnecessary costs. Current ratio is used by financial analysts to indicate whether the company has the resources to pay its short-term debt. A ratio of 1 or higher shows that the company can pay for its short-term debt with the current assets it possesses. However, too high of a ratio may indicate that the company is not using its resources efficiently. The current ratio for Wilemon Co. is a solid ratio and not very alarming.
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