Following are the current asset and current liability sections of the balance sh
ID: 2561995 • Letter: F
Question
Following are the current asset and current liability sections of the balance sheets for Freedom, Inc., at January 31, 2017 and 2016 (in millions):
Required:
a. Calculate the working capital and current ratio at each balance sheet date. (Enter "Working capital" in millions of dollars (i.e., 10,000,000 should be entered as 10). Round your "Current ratio" to 2 decimal places.)
Choose the correct answer below
b. Evaluate the firm's liquidity at each balance sheet date.
Choose the correct answer below
c. Assume that the firm operated at a loss during the year ended January 31, 2017. How could cash have increased during the year?
January 31, 2017 January 31, 2016 Current Assets Cash $ 9 $ 6 Accounts receivable 7 10 Inventories 6 10 Total current assets $ 22 $ 26 Current Liabilities Note payable $ 5 $ 5 Accounts payable 7 4 Other accrued liabilities 3 3 Total current liabilities $ 15 $ 12
Explanation / Answer
a.
b. Based on the working capital and current ratio measures, the firm has become less liquid over the 2-year period.
c.Changes in a firm's cash position and its profitability are not directly related under accrual basis of accounting.
31-Jan-17 31-Jan-16 Current Assets 22 26 Current Liabilities 15 12 Working capital 7 14 current ratio 1.47 2.17