Diane 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:
Total assets ………………………….. $530,000
Total noncurrent assets ………………. 362,000
Liabilities:
Notes payable (8%, due in 5 years) …… 15,000
Accounts payable ……………………… 56,000
Income taxes payable ………………….. 14,000
Liability for withholding taxes …………. 3,000
Rent revenue collected in advance …….. 7,000
Bonds payable (due in 15 years) ……… 90,000
Wages payable …………………………. 7,000
Property taxes payable …………………. 3,000
Note payable (10%, due in 6 months) … 12,000
Interest payable ………………………….. 400
Common stock ………………………. 100,000
Required:
1. Compute (a) working capital and (b) the quick ratio (quick assets are $70,000). Why is working capital important to management? How do financial analysts use the quick ratio?
2. Would your computations be different if the company reported $250,000 worth of contingent liabilities in the notes to the statements? Explain.