Libby Solutions Ch 9

Libby Solutions Ch 9 - MINI-EXERCISES M91. 1st Year 2nd...

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MINI-EXERCISES M9–1. 1 st Year $600,000 × .11 × 1/12 = $5,500 2 nd Year $600,000 × .11 × 2/12 = $11,000 M9–2. October 1 Cash (+A). ....................................................................... 290,000 Note payable (+L). ....................................................... 290,000 December 31 Interest expense (+E, -SE). ............................................. 7,250 Interest payable (+L). ................................................... 7,250 E9–1. Req. 1 (a) Current assets. ................................................................ $168,000 Current liabilities: Accounts payable. ....................................................... $56,000 Income taxes payable. ................................................. 14,000 Liability for withholding taxes. ...................................... 3,000 Rent revenue collected in advance. ............................ 7,000 Wages payable. ........................................................... 7,000 Property taxes payable. ............................................... 3,000 Note payable, 10% (due in 6 months). ........................ 12,000 Interest payable. .......................................................... 400 (102,400) Working capital. ............................................................... $ 65,600 (b) Quick ratio: ($70,000 ÷ $102,400) = 0.68 . 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 quick ratio is a measure of liquidity. It helps analysts assess a company’s ability to meet its obligations.
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No, contingent liabilities are reported in the notes, not on the balance sheet. Therefore, they are not included in the required computations.
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This note was uploaded on 03/20/2012 for the course ACCT 225 taught by Professor Canace during the Spring '08 term at South Carolina.

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Libby Solutions Ch 9 - MINI-EXERCISES M91. 1st Year 2nd...

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