Reference no: EM132465716

Cash                                   3,000

Capital                                35,000

Machinery                             25,000

Equipment                             6,800

Motor vehicles                        12,900

Buildings                                 38,400

Account receivable                     9,000

Account payable                          7,000

Inventory                                   4,400

Short-term investment (Note 1) 12,200

Long-term loan                           10,600

Mortgage payable (Note 2)           29,400

Short-term loan from bank            8,400

Retained Profit 1 July 2018             12,000

Profit for the year to 30 June 2019 11,000

Note 1: the short-term investment (marketable securities) can be converted to cash within 2 months.

Note 2: The mortgage will be repaid on May 2022.

Note 3: Dividends of $1,700 were paid to the investors at the end of this year.

Required:

Question (1) Prepare the balance sheet for this company at 30/6/2019;

Tips: the retained profit this year = profit - dividend; The retained profit this year should be added to the "retained profit" account.

Question (2) Calculate the working capital, current ratio, and acid test ratio;

Tips: Working captial = current assets - current liabilities;

Current ratio = current assets / current liabilities;

Acid test ratio = (current assets - inventory) / current liabilities

Question (3) Use your own words to explain: why an account receivable is an asset; and why an account payable is a liability?

Question (4) Why the short-term investment belongs to current assets in this case?

Question (5) Is the mortgage payable of current liabilities or non-current liabilities? Why?

Question (6) When the mortgage payable will become current liabilities?

Question (7) What is the meaning of working capital to the financial position?

Question (8) What is difference between the current ratio and the acid test ratio? Why does the acid test ratio exclude "inventory" from current assets?

Question (9) Can we cancel the "retained profit" account, and make it part of the "capital" account? Why?

Question (10) Comment on the liquidity position of this company.

Tips: focus on "cash", "short-term investment" and "short-term loan"; furthermore, think about "profit this year" and "account receivable". Is the account receivable level good for liquidity?