Answer:
Working capital $550,000
Explanation:
Given that
The Current ratio is 2:1
Inventory is $200,000
And, the quick ratio is 1:7
Now as we know that
Current ratio = Current assets ÷ current liabilities
2.1 = Current assets ÷ current liabilities
2.1 current liabilities = current assets
And, the quick ratio is
Quick ratio ÷ quick assets ÷ current liabilities
1.7 = (Current assets - inventory) ÷ current liabilities
1.7 = (Current assets - $200,000) ÷ current liabilities
1.7 current liabilities = current assets - $200,000
Now put the value of current liabilities
1.7 current liabilities = 2.1 current liabilities - $200,000
$200,000 = 2.1 current liabilities - 1.7 current liabilities
$200,000 = 0.4 current liabilities
So, current liabilities
= $200,000 ÷ 0.4
= $500,000
Now the current assets = 2.1 × $500,000
= $1,050,000
Now the working capital is
= Current assets - current liabilities
= $1,050,000 - $500,000
= $550,000
