1)Which one of the following statements related to liquidity is correct? 2)Bonne

Question

1)Which one of the following statements related to liquidity is correct?

2)Bonner Collision has shareholders' equity of $141,800. The firm owes a total of $126,000 of which 60 percent is payable within the next year. The firm net fixed assets of $161,900. What is the amount of the net working capital?

Liquid assets tend to earn a high rate of return. Liquid assets are valuable to a firm. Liquid assets are defined as assets that can be sold quickly regardless of the price obtained. Inventory is more liquid than accounts receivable because inventory is tangible. Any asset that can be sold within the next year is considered liquid.

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

Option B (Liquid assets are valuable to a firm) is the correct answer.

Part B:

Current Liabilities = .60*126000 = 75600

Total Assets = 141800 (Shareholder's Equity) + 126000 (Total Amount Owed) = 267800

Current Assets = 267800 (Total Assets) - 161900 (Fixed Assets) = 105900

Working Capital = Current Assets - Current Liabilities = 105900 - 75600 = 30300

Option B (30300) is the correct answer.

Thanks.

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