Chapter 2, Problem 2.10E

a.

To determine

Current ratio: The financial ratio which evaluates the ability of a company to pay off the debt obligations which mature within one year or within completion of operating cycle is referred to as current ratio. This ratio assesses the liquidity of a company.

Formula of current ratio:

$\text{Current ratio = }\frac{\text{Current assets}}{\text{Current liabilities}}$

Working capital: The measure which evaluates the ability of a company to pay off the short-term debt obligations, by computing the excess of current assets over current liabilities is referred to as working capital. This ratio assesses the liquidity of a company.

Formula of working capital:

$\text{Working capital = Current assets – Current liabilities}$

To compute: Current ratio and working capital of Corporation G

(b)

To determine

To compute: New current ratio and working capital after making the said adjustments

(c)

To determine

To explain: The pros and cons of current ratio and working capital

(d)

To determine

To discuss: The ethical issues in the decision of chief financial officer (CFO)