Question

College Spirit sells sportswear with logos of major universities. At the end of 2019, the following balance sheet account balances were available. Accounts payable $104,700 Income taxes payable $ 11,400 Accounts receivable 6,700 Inventory 495,400 Accumulated depreciation 23,700 Long-term investment 124,900 Bonds payable 50,000 Note payable, short-term 50,000 Cash 13,300 Prepaid rent (current) 54,000 Common stock 300,000 Retained earnings, 12/31/2019 242,500 Furniture 88,000 Required: 1. Prepare a classified balance sheet for College Spirit at December 31, 2019 College Spirit Balance Sheet December 31, 2019 Assets Current assets: Total current assets Long-term investments: Property, plant, and equipment: Total assets Liabilities Current liabilities: Total current liabilities Long-term liabilities: Total liabilities Stockholders' Equity Total stockholders' equity Total liabilities and stockholders' equity 2. Compute College Spirit's working capital and current ratio at December 31, 2019. Round the current ratio answer to two decimal places. Working Capital Current Ratio 3. Conceptual Connection: Comment on College Spirit's liquidity as of December 31, 2019. The working capital and current ratios show that College Spirit adequate current assets to cover all of the current liabilities that will become due in the near future.

Answer 1

1) College Spirit Balance sheet as at 31st December 2019 :- Assets Amount $ Amount $ Current Assets :- 13,300 Cash Accounts Receivable 6,700 Inventory 495,400 Prepaid Rent 54.000 Total current assets 569,400 Long term Investment :- Long term Investment 124,900 Property, Plant & Equipment :- 88,000 Furniture Less: Accumulated depreciation (23,700) Total Property, Plant & Equipment 64,300 Total Assets 758,600 Liabilities Current Liabilities :- Accounts Payable 104,700 Income taxes Payable 11,400 Notes Payable, Short term 50.000 166,100 Total Current Liabilities Long term Liabilities :- Bonds Payable 50,000 Shareholders equity Common stock 300,000 Retained earnings 242,500 Total Shareholders equity 542,500 Total Liabilities and shareholders equity 758,600 2) Working capital is = Total current assets - Total current liabilities Working capital is = (569400-166100) Working capital is = $ 403,300/. Current ratio = Total current assets/Total current liabilities Current ratio = (569400/166100) Current ratio = 3.43 Times 3) Has