Posted: April 24th, 2016

What other related ratios would the company’s lenders use to assess the company?

EXERCISE 9-5: Current Liabilities and Ratios

Several accounts that appeared on Kruse’s 2012 balance sheet are as follows:
Accounts Payable $55,000
Marketable Securities 40,000
Accounts Receivable 180,000
Notes Payable, 12%, due in 60 days 20,000
Capital Stock 1,150,000
Salaries Payable 10,000
Cash 15,000
Equipment 950,000
Taxes Payable 15,000
Retained Earnings 250,000
Inventory 85,000
Allowance for Doubtful Accounts 20,000
Land 600,000
1. Prepare the Current Liabilities section of Kruse’s 2012 balance sheet.
2. Compute Kruse’s working capital.
3. Compute Kruse’s current ratio.

What does this ratio indicate about Kruse’s condition?

EXERCISE 10-11: Impact of Transactions Involving Capital Leases on Statement of Cash Flows

Assume that Garnett Corporation signs a lease agreement with Duncan Company to lease a piece of equipment and determines that the lease should be treated as a capital lease. Garnett records a leased asset in the amount of $53,400 and a lease obligation in the same amount on its balance sheet.

1. Indicate how this transaction would be reported on Garnett’s statement of cash flows.
2. In the following list of transactions relating to this lease, identify each item as operating (O), investing (I), financing (F), or not separately reported on the statement of cash flows (N).

Reduction of lease obligating (principal portion of lease payment)
Interest expense
Increase in deferred taxes

PROBLEM 10-9: Partial Classified Balance Sheet for Walgreens

The following items, listed alphabetically, appear on Walgreen’s consolidated balance sheet at August 31, 2010 (in millions).

Accrued expenses and other liabilities 2,763
Deferred income tax (long-term) 318
Long-term debt 2,389
Other noncurrent liabilities 1735
Short-term borrowing 12
Trade accounts payable 4585
Income Taxes 73

1. Prepare the Current Liabilities and Long-Term Liabilities sections of Walgreens’s classified balance sheet at August 31, 2010.

2. Walgreens had total liabilities of $10,766 and total shareholders’ equity of $14,376 at August 31, 2009. Total shareholders’ equity at August 31, 2010, amounted to $14,400. (All amounts are in millions.) Compute Walgreens’s debt-to-equity ratio at August 31, 2010 and 2009.

As an investor, how would you react to the changes in the ratio?

3. What other related ratios would the company’s lenders use to assess the company? What do these ratios measure? List as many as you determine needed.

PROBLEM 11-7: Wal-mart’s Comprehensive Income