Chapter 13, Problem 13.6E

1.

To determine

Introduction:An indicator that specifies the ability of a company to repay its current obligations is termed the current ratio. It is said that a company should always have double the current assets to repay its current liabilities. Both current and quick ratio indicates about the liquidity position of the company.

To calculate: Following ratios for K Company and GM Inc.

1. Current ratio
2. Quick ratio

2.

To determine

Introduction:Short term obligations that are paid within a year or operating cycle are termed as current liabilities or in other words it can be referred to as a debt that needs to be repaid within a year.

To calculate: Ratio of cash flow from operations to current liabilities ofK Company and GM Inc. for 2014.

3.

To determine

Introduction:Liquidity is a situation in which, the asset of a company can quickly and easilybe converted into cash, i.e., within a short period. Assets that are quickly turned into cash are said to be liquid assets.

To comment: On the liquidity of K Company and GM Inc.

4.

To determine

Introduction: Liquidity is a situation in which, the asset of a company can quickly and easilybe converted into cashi.e. within a short period. Assets that are quickly turned into cash are said to be liquid assets.

To specify: Other ratios that help in determining the liquidity of a company.