The following are the figures of Company B’s accounts for the year ended 31 December 2019 and as of 31 December 2019.

Accounts receivable $40,000; Depreciation expense (Equipment) $5,000; Cash $60,000; Short-term debt $5,000; Inventory $20,000; accounts payable $50,000; other accrued liabilities $5,000; Equipment $80,000; Accumulated depreciation (Equipment) $20,000; Salaries and wages expenses $10,000; Sales revenue $200,000; Prepaid expense $20,000; Unearned revenue $10,000.

On 1 January 2020, Company B purchased land and building for $400,000 cash. The appraised values were (a) land: $325,000 and (b) building: $175,000.

In May 2020, the Board of Directors of Company B is considering the payment of dividends to its stockholders.

Required:
With the given figures of Company B’s accounts in this question:

1. Calculate the working capital as of 31 December 2019.

2. Calculate the current ratio as of 31 December 2019.

3. Calculate the acid-test ratio as of 31 December 2019.

Discuss THREE potential risks to the company that maintains a very high current ratio result.

4. For the basket purchase of land and building on 1 January 2020, how much of the $400,000 purchase price is apportioned to the land account and the building account respectively?

   Provide THREE important factors that the Board of Directors of Company B should consider before making the final decision on the declaration and payment of dividend.
   
   

Answer rating: 100% (QA)

1 Working capital Total Current Assets Total Current Liabilities 140000 70000 70000 Current Assets Current Liabilities Cash 60000 Accounts Payable 500... View the full answer