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: Current ratio = Current assets 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: Working capital = Current assets – Current liabilities To compute : (a) Current ratio and working capital, (b) New current ratio and working capital after making the said adjustments, (c) Explain the pros and cons of current ratio and working capital (d) Discuss the ethical issues in the decision of chief financial officer (CFO)

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Answer 1

Question

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:

$Current ratio = Current assetsCurrent liabilities$

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:

$Working capital = Current assets – Current liabilities$

To compute: (a) Current ratio and working capital, (b) New current ratio and working capital after making the said adjustments, (c) Explain the pros and cons of current ratio and working capital (d) Discuss the ethical issues in the decision of chief financial officer (CFO)

(b)

To determine

To compute: (b) New current ratio and working capital after making the said adjustments.

(c)

To determine

To compute: (c) Explain the pros and cons of current ratio and working capital.

(d)

To determine

To compute :(d) Discuss the ethical issues in the decision of chief financial officer (CFO).

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Answer 2

Question

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:

$Current ratio = Current assetsCurrent liabilities$

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:

$Working capital = Current assets – Current liabilities$

To compute: (a) Current ratio and working capital, (b) New current ratio and working capital after making the said adjustments, (c) Explain the pros and cons of current ratio and working capital (d) Discuss the ethical issues in the decision of chief financial officer (CFO)

(b)

To determine

To compute: (b) New current ratio and working capital after making the said adjustments.

(c)

To determine

To compute: (c) Explain the pros and cons of current ratio and working capital.

(d)

To determine

To compute :(d) Discuss the ethical issues in the decision of chief financial officer (CFO).

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Answer 3

Question

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:

$Current ratio = Current assetsCurrent liabilities$

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:

$Working capital = Current assets – Current liabilities$

To compute: (a) Current ratio and working capital, (b) New current ratio and working capital after making the said adjustments, (c) Explain the pros and cons of current ratio and working capital (d) Discuss the ethical issues in the decision of chief financial officer (CFO)

(b)

To determine

To compute: (b) New current ratio and working capital after making the said adjustments.

(c)

To determine

To compute: (c) Explain the pros and cons of current ratio and working capital.

(d)

To determine

To compute :(d) Discuss the ethical issues in the decision of chief financial officer (CFO).

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Answer 4

Question

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:

$Current ratio = Current assetsCurrent liabilities$

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:

$Working capital = Current assets – Current liabilities$

To compute: (a) Current ratio and working capital, (b) New current ratio and working capital after making the said adjustments, (c) Explain the pros and cons of current ratio and working capital (d) Discuss the ethical issues in the decision of chief financial officer (CFO)

(b)

To determine

To compute: (b) New current ratio and working capital after making the said adjustments.

(c)

To determine

To compute: (c) Explain the pros and cons of current ratio and working capital.

(d)

To determine

To compute :(d) Discuss the ethical issues in the decision of chief financial officer (CFO).

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Answer 5

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:

$Current ratio = Current assetsCurrent liabilities$

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:

$Working capital = Current assets – Current liabilities$

To compute: (a) Current ratio and working capital, (b) New current ratio and working capital after making the said adjustments, (c) Explain the pros and cons of current ratio and working capital (d) Discuss the ethical issues in the decision of chief financial officer (CFO)

(b)

To determine

To compute: (b) New current ratio and working capital after making the said adjustments.

(c)

To determine

To compute: (c) Explain the pros and cons of current ratio and working capital.

(d)

To determine

To compute :(d) Discuss the ethical issues in the decision of chief financial officer (CFO).

Answer 6

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:

$Current ratio = Current assetsCurrent liabilities$

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:

$Working capital = Current assets – Current liabilities$

To compute: (a) Current ratio and working capital, (b) New current ratio and working capital after making the said adjustments, (c) Explain the pros and cons of current ratio and working capital (d) Discuss the ethical issues in the decision of chief financial officer (CFO)

Answer 7

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:

$Current ratio = Current assetsCurrent liabilities$

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:

$Working capital = Current assets – Current liabilities$

To compute: (a) Current ratio and working capital, (b) New current ratio and working capital after making the said adjustments, (c) Explain the pros and cons of current ratio and working capital (d) Discuss the ethical issues in the decision of chief financial officer (CFO)

Answer 8

(b)

To determine

To compute: (b) New current ratio and working capital after making the said adjustments.

Answer 9

(b)

To determine

To compute: (b) New current ratio and working capital after making the said adjustments.

Answer 10

(c)

To determine

To compute: (c) Explain the pros and cons of current ratio and working capital.

Answer 11

(c)

To determine

To compute: (c) Explain the pros and cons of current ratio and working capital.

Answer 12

(d)

To determine

To compute :(d) Discuss the ethical issues in the decision of chief financial officer (CFO).

Answer 13

(d)

To determine

To compute :(d) Discuss the ethical issues in the decision of chief financial officer (CFO).

Answer 14

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Answer 15

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Answer 16

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Answer 17

Ch. 2 - What is meant by the term operating cycle?Ch. 2 - Define current assets. What basis is used for...Ch. 2 - Prob. 3Q Ch. 2 - Prob. 4Q Ch. 2 - Prob. 5Q Ch. 2 - Prob. 6Q Ch. 2 - Prob. 7Q Ch. 2 - Prob. 8Q Ch. 2 - What do these classes of ratios measure? (a)...Ch. 2 - Prob. 10Q

Solution Summary: The author explains current ratio, working capital, and ethical issues in the decision of the chief financial officer (CFO).

To compute: (b) New current ratio and working capital after making the said adjustments.

To compute: (c) Explain the pros and cons of current ratio and working capital.

To compute :(d) Discuss the ethical issues in the decision of chief financial officer (CFO).

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Chapter 2 Solutions