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Mgmt 200 Assignment Soln 1-22-10

Mgmt 200 Assignment Soln 1-22-10 - Management 200...

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Management 200 – Introductory Financial Accounting– Spring 2010 Krannert School of Management - Purdue University Solutions to class assignment for January 22, 2010 Problem 2-5 Working Capital and Current Ratio 1. Current ratio = Current assets/Current liabilities (\$23,000 + \$13,000 + \$45,000 + \$800) / (\$54,900 + \$1,200) = \$81,800/\$56,100 = 1.46 to 1 Working capital = Current assets – Current liabilities = \$81,800 – \$56,100 = \$25,700 2. One concern is the relatively large percentage of the current assets tied up in inventory. This asset accounts for \$45,000/\$81,800, or 55% of the total current assets. What is the normal period of time it takes to sell inventory? Is any part of the inventory slow-moving or obsolete? 3. On the basis of current ratio alone, Stevenson appears to be relatively liquid, although it would be important to compare the ratio with those of prior years and with those of other companies in the same industry. Exercise 2-4 Missing Income Statement Amounts Sara’s Coffee Amy’s Jane’s Shop Deli Bagels Net sales \$ 35,000 (3) \$ 63,000 \$ 78,000 Cost of goods sold (1) 28,000 45,000 (7) 39,000 Gross profit 7,000 18,000 (6) 39,000

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Mgmt 200 Assignment Soln 1-22-10 - Management 200...

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