Problem 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 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

Use the information provided in the table to compute and answer the following for the Sanchez Corporation:

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

Why is working capital important to management?

How do financial analysts use the quick ratio?

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.