1. Compute the subsequent amounts and ratios as of the beginning of the year:
a. capital = current assets - current liabilities
working capital = ($50,000 + $30,000 + $200,000 + $210,000 + $10,000) - ($150,000 + $30,000 + $20,000)
= $500,000 - $200,000
= $300,000
b. Current ratio = current assets / current liabilities
current ratio = $500,000 / $200,000
= 2.5
c. Acid-test ratio = (current assets - inventory) / current liabilities
acid test ratio = ($500,000 - $210,000) / $200,000
= $290,000 / $200,000
= 1.45
Financial Ratios :
These are the tools normally utilized in financial management that serve as multi-purpose for other reasons such as obtaining a loan from bank, infusion of additional capital from investors, etc
Acid test ratios :
In finance, the fast ratio, also referred to as the acid-test ratio is a type of liquidity ratio, which measures the power of a company to use its near cash or quick assets to extinguish or retire its current liabilities immediately.
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