The balance sheet for Peterson Manufacturing Company is presented below.
During 2009,the firm earned $28,000 after taxes based on net sales of $480,000.
a.Calculate Peterson's current ratio and net working capital.
b.Assume that Peterson's uses $20,000 of its cash to reduce current liabilities.Recompute the current ratio and net working capital.
c.What effect,if any,does the change proposed in question b have on Peterson's liquidity.

Question

The balance sheet for Peterson Manufacturing Company is presented below.  
During 2009,the firm earned $28,000 after taxes based on net sales of $480,000.
a.Calculate Peterson's current ratio and net working capital.
b.Assume that Peterson's uses $20,000 of its cash to reduce current liabilities.Recompute the current ratio and net working capital.
c.What effect,if any,does the change proposed in question b have on Peterson's liquidity.

Quizplus · Accepted Answer

The Answer of The balance sheet for Peterson Manufacturing Company is presented below.  
During 2009,the firm earned $28,000 after taxes based on net sales of $480,000.
a.Calculate Peterson's current ratio and net working capital.
b.Assume that Peterson's uses $20,000 of its cash to reduce current liabilities.Recompute the current ratio and net working capital.
c.What effect,if any,does the change proposed in question b have on Peterson's liquidity.

The Balance Sheet for Peterson Manufacturing Company Is Presented Below