Answer:
Free Spirit Industries Corporation and LeBron Sports Equipment Corporation
1a. Free Spirit Industries Corporation’s current ratio is , and its quick ratio is 1.3337 : 1 and 0.7469 : 1 respectively.
1b. LeBron Sports Equipment Corporation’s current ratio is , and its quick ratio is 1.6596 : 1 and 0.9294 : 1 respectively.
2. True: Free Spirit Industries Corporation has less liquidity but also a greater reliance on outside cash flow to finance its short-term obligations than LeBron Sports Equipment Corporation.
3. True: A current ratio of 1 indicates that the book value of the company’s current assets is equal to the book value of its current liabilities.
4. True: An increase in the current ratio over time always means that the company’s liquidity position is improving.
Explanation:
a) Data:
Balance Sheet December 31st (Millions of dollars)
LeBron Sports Equipment Corporation   Free Spirit Industries Corporation 
                              LeBron   Free Spirit                             LeBron   Free Spirit
Assets                                                        Liabilities 
Current assets                                        Current liabilities
Cash                            $1,435      $922     Accounts payable         $0    $0
Accounts receivable      525         338      Accruals                       316      0
Inventories                   1,540         990      Notes payable          1,793   1,687
Total current assets $3,500   $2,250 Total current liabilities $2,109$1,687
Net fixed assets                                          Long-term bond      2,578 2,063
Net plant & equipment 2,750 2,750         Total debt             $4,687 $3,750
                                                                     Common equity
                                                                     Common stock     $1,016     $813
                                                                     Retained earnings   547       437
                                                             Total common equity $1,563  $1,250
Total assets      $6,250 $5,000 Total liabilities and equity$6,250 $5,000
b) Current Ratio and Quick Ratio:
Current Ratio = Current Assets/Current Liabilities
Quick Ratio = (Current Assets - Inventory)/Current Liabilities
1a. Free Spirit Industries Corporation’s current ratio is , and its quick ratio is
Current Ratio = $2,250 / $1,687 = 1.3337 : 1
Quick Ratio = ($2,250 - 990) / $1,687 = 0.7469 : 1
1b. LeBron Sports Equipment Corporation’s current ratio is , and its quick ratio is:
Current Ratio = $3,500 / $2,109 = 1.6596 : 1
Quick Ratio = $3,500 -1,540 / $2,109 = 0.9294 : 1