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Problem - Sedgewick Boutique reported the following financial data for 2014 and 2013.

SEDGEWICK BOUTIQUE Balance Sheet (partial) September 30 (in thousands)
Current assets 2014 2013
Cash and short-term deposits $2,574 $1,021
Accounts receivable 2,147 1,575
Inventories 1,201 1,010
Other current assets 322 192
Total current assets $6,244 $3,798
Current liabilities $4,503 $2,619

Instructions-

(a) Calculate the current ratio for Sedgewick Boutique for 2014 and 2013.

(b) Suppose that at the end of 2014, Sedgewick Boutique used $1.5 million cash to pay off $1.5 million of accounts payable. How would its current ratio change?

(c) At September 30, Sedgewick Boutique has an undrawn operating line of credit of $12.5 million. Would this affect any assessment that you might make of Sedgewick Boutique's short-term liquidity? Explain.

Financial Accounting, Accounting

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