Apla Student Question x aplia com/al/servdet/quiz?quiz action- takeQuiz Biquiz p
ID: 1172728 • Letter: A
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Apla Student Question x aplia com/al/servdet/quiz?quiz action- takeQuiz Biquiz probGuid-QNAPCOA8010100000011cdaa 300500008ctx robert2-00398ick-m 152868081081 A liquid asset can be converted quickly to cash with little sacrifice in its value Which of the folowing asset classes is generally considered to be the least liquid? Cash O Accounts receivable O Invervtories The most recent deta from the annual balance sheets of Pellegnini Southem Inc. and Scramouche Opera Compeny are as follows Southem 1 Balance Sheet (Millions of dollars) Opera Southern opera Southern Inc. Current assets Current labilies so $0 1,076 6,096 ,172 8,765 15,937 $4,879 $3,136 Accounts payable 1,148 Actruas 3,366 Notes payabie 7,650 Total current liabilities Accounts receivable 5,737 5,737 7,013 12,750 S,236 Total current assets ,900 Long-term bonds 9,350 9,350 Total debt Net plant and equipment Common equity 3,453 Common stock Retained earnings Total common equity 1,487 5,313 21.250 17,000 21,250 17,000 Total liabisties and equty Scramouche Opera Company's quick ratio h Peliegrini Southem Enc's quick ratio isExplanation / Answer
1. Inventories , To sell inventory, it will take time. Because it is used for the production, not for selling.
2. Pellegrini quick ratio = [Total current assets - inventories] / total current liabilities
= [7650 - 3366] / 5737
= 4284 / 5737
= 0.75
Current ratio = Total current assets / total current liabilities
= 7650 / 5737
= 1.33
Scramouche quick ratio = [11900 - 5236] / 7172
= 6664 / 7172
= 0.93
Current ratio = 11900 / 7172
= 1.66
3. a. pellegrini southern inc. has less liquidity but also a greater reliance on outside cash flow to finance its short term obligations than scramouche opera company
b. An increase in current ratio over time always means that the company liquidity position is improving
c. A current ratio of 1 indicates that the book value of the company current assets is equal to the book value of its current liabilities.
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