Question

On June 30, 2011, Weslaco Company’s total current assets were $500,000 and its total current liabilities were $275,000. On July 1, 2011, Weslaco issued a short-term note to a bank for $40,000 cash. Required: a. Compute Weslaco’s working capital before and after issuing the note. (Omit the "$" sign in your response.) b. Compute Weslaco’s current ratio before and after issuing the note. (Round your answers to 2 decimal places.)

Answer 1

Answer: the correct answer is a. working capital 225000.00 before issuing the note and 185000.00 after issuing the note. b current ratio 1.82 before the note and 1.59 after the note.

Explanation:  Working capital = Current assets - Current liabilities

500000.00 - 275000.00 = 225000.00 before issuing a short term note

the short term note is a current liability.

500000.00 - 315000.00 = 185000.00  after issuing a short term note

Using the Balance Sheet, the current ratio is calculated by dividing current assets by current liabilities: For example, if a company's current assets are $ 5,000 and its current liabilities are $ 2,000, then its current ratio is 2.5.

500000.00 / 275000.00 = 1.82 before issuing the note

500000 / (275000 plus 40000) =

500000 / 315000 = 1.59 after issuing the note.