The following selected information (in thousands) was taken from Fruition Collections Ltd.’s December 31 statement of financial position:
Instructions
(a) Calculate the current ratio for each of the two years.
(1) Based only on this information, would you say that the company’s liquidity is strong or weak?
(2) What additional information should you request to complete your assessment of liquidity?
(b) Suppose that Fruition Collections used $1,000,000 of its cash to pay off $1,000,000 of its accounts payable. Would this transaction change the current ratio?
(c) At December 31, 2012, Fruiti on Collections had an unused operating of $4million. Does this information affect the assessment of the company’s short-term liquidity that you made in (a) above?
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