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?