Reference no: EM132538103

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: Is the mortgage payable of current liabilities or non-current liabilities? Why?

Question 2: When the mortgage payable will become current liabilities?

Question 3: What is the meaning of working capital to the financial position?

Question 4: What is difference between the current ratio and the acid test ratio? Why does the acid test ratio exclude "inventory" from current assets?

Question 5: Can we cancel the "retained profit" account, and make it part of the "capital" account? Why?

Question 6:  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?