solution
solution.
A liquid asset can be converted quickly to cash with little sacrifice in its value.
Question #1 Which of the following asset classes is generally considered to be the least liquid?
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B. Inventories
C. Accounts receivable
The most recent data from the annual balance sheets of Pellegrini Southern Inc. and Zebra Paper Corp. are as follows:
Balance Sheet December 31stst (Millions of dollars)
|
Zebra Paper Corp. |
Pellegrini Southern Inc. |
Zebra Paper Corp. |
Pellegrini Southern Inc. |
||
|---|---|---|---|---|---|
| Assets | Liabilities | ||||
| Current assets | Current liabilities | ||||
| Cash | $5,166 | $3,321 | Accounts payable | $0 | $0 |
| Accounts receivable | 1,890 | 1,215 | Accruals | 1,139 | 0 |
| Inventories | 5,544 | 3,564 | Notes payable | 6,455 | 6,075 |
| Total current assets | 12,600 | 8,100 | Total current liabilities | 7,594 | 6,075 |
| Net fixed assets | Long-term bonds | 9,281 | 7,425 | ||
| Net plant and equipment | 9,900 | 9,900 | Total debt | 16,875 | 13,500 |
| Common equity | |||||
| Common stock | 3,656 | 2,925 | |||
| Retained earnings | 1,969 | 1,575 | |||
| Total common equity | 5,625 | 4,500 | |||
| Total assets | 22,500 | 18,000 | Total liabilities and equity | 22,500 | 18,000 |
Question #2 Pellegrini Southern Inc.’s current ratio is ___________ ,
A. 2.8333
B. 2.5333
C. 1.8333
D. 1.3333
Question #3 And its quick ratio is ________ ;
A. 1.1201
B. 0.9292
C. 0.8960
D. 0.7467
Question #4 Zebra Paper Corp.’s current ratio is _______ ,
A. 1.6592
B. 2.1592
C. 2.8592
D. 3.1592
Question #5 And its quick ratio is _______ .
A. 1.3938
B. 0.9292
C. 0.7467
D. 1.1150
Note: Round your values to four decimal places.
Question #6 Which of the following statements are true?
Check all that apply.
A. Zebra Paper Corp. has a better ability to meet its short-term liabilities than Pellegrini Southern Inc..
B. If a company’s current liabilities are increasing faster than its current assets, the company’s liquidity position is weakening.
C. If a company has a quick ratio of less than 1 but a current ratio of more than 1 and if the difference between the two ratios is large, then the company depends heavily on the sale of its inventory to meet its short-term obligations.
D. Compared to Pellegrini Southern Inc., Zebra Paper Corp. has less liquidity and a lower reliance on outside cash flow to finance its short-term obligations.
E. An increase in the current ratio over time always means that the company’s liquidity position is improving.
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