The sanchez corporation is preparing its 2012 balance sheet

Question

Assessment Instructions

Problem 5-1: Working Capital, Current Ratio, Quick Assets, Acid-Test Ratio

The Sanchez Corporation is preparing its 2012 balance sheet. The company records show the following selected amounts at the end of the accounting period, December 31, 2012:

Problem 5-1: Sanchez Corporation Selected Amounts

                                                                              Account        Dollar Amount

Total assets	$600,000
Total noncurrent assets	$350,000

 

 

Liabilities	Dollar Amount
Notes payable (8%, due in 6 years)	$40,000
Accounts payable	$60,000
Income taxes currently payable	$15,000
Liability for withholding taxes	$4,000
Rent revenue collected in advance by up to four months	$8,000
Bonds payable (due in 15 years).	$100,000
Wages payable	$6,000
Property taxes payable	$3,000
Note payable (10%, due in 6 months)	$22,000
Interest payable	$1,200
Common stock	$200,000

Using the information provided in the table, complete the following:

1. Compute (a) working capital and (b) the quick ratio (quick assets are $120,000).

Then, answer the following questions?

1. Why is working capital important to management?
2. How do financial analysts use the quick ratio?
3. Would your computations be different if the company reported $250,000 worth of contingent liabilities in the notes to the statements? Explain. Include in your explanation a definition of contingent liabilities and an example of a contingent liability.