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Unformatted text preview: M9-2October 1, 2009Cash (+A)$290,000Notes payable, short-term (+L)$290,000Interest expense for 2009: Interest = Principal x Interest Rate x Time$290,000 x 10% x 3/12 = December 31, 2009Interest Expense (+E, - SE)$7,250Interest Payable (+L)$7,250E9-11.(a) Working Capital = Total Current Assets – Total Current LiabilitiesTotal Current Assets = $530,000 – 362,000 = 168,000Total Current Liabilities = 56,000 + 14,000 + 3,000 + 7,000 + 7,000 + 3,000 + 12,000 + 400 = 102,400Working Capital = 168,000 – 102,400 = $65,600This is important to both managers and financial analysts because it has a significant impact on the health and profitability of a company. This account is actively managed to generate a balance between costs and benefits. (b) Current Ratio= Current Assets / Current Liabilities168,000/ 102,400 = 1.64High current ratio means the company has good liquidity, and good liquidity means it has the ability to pay current obligations. This number shows if the resources are being efficiently used. being efficiently used....
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This note was uploaded on 10/21/2009 for the course H ADM 223 taught by Professor Pstrebel during the Spring '07 term at Cornell.
- Spring '07