Reference no: EM13495195

Assessment Instructions

For this assessment, complete the Problems 5-1, 5-2, and 5-3. You may use Word or Excel to complete the assessments throughout this course, but you will find Excel to be most helpful for creating spreadsheets. Tutorials for using Excel are provided in the Supplemental Resources in the left navigation menu. If you use Excel, submit the assessment in one Excel document, using separate tabs for each spreadsheet.

Problem 5-1: Working Capital, Current Ratio, Quick Assets, Acid-Test Ratio

The Sanchez Corporation is preparing its 2012 balance sheet. The company records show the following selected amounts at the end of the accounting period, December 31, 2012:

Problem 5-1: Sanchez Corporation Selected Amounts

                                                                              Account        Dollar Amount

Using the information provided in the table, complete the following:

1. Compute (a) working capital and (b) the quick ratio (quick assets are $120,000).

Then, answer the following questions?

1. Why is working capital important to management?
2. How do financial analysts use the quick ratio?
3. Would your computations be different if the company reported $250,000 worth of contingent liabilities in the notes to the statements? Explain. Include in your explanation a definition of contingent liabilities and an example of a contingent liability.