Answer:
(a) 2.62; 1.62
(b) 1.80; 1.11
Explanation:
Given that,
Current assets = $97,000 (of which Inventory and prepaid items = $37,000)
Current liabilities = $37,000
Current ratio = Current assets ÷ Current liabilities
= $97,000 ÷ $37,000
= 2.62
Acid test ratio:
= (Current assets - Inventory and prepaid expense) ÷ Current liabilities
= ($97,000 - $37,000) ÷ $37,000
= $60,000 ÷ $37,000
= 1.62
If the company borrows $17,000 cash from a bank on a 120-day loan.
Current liabilities = Old current liabilities + New current liabilities
= $37,000 + $17,000
= $54,000
Current ratio = Current assets ÷ Current liabilities
= $97,000 ÷ $54,000
= 1.80
Acid test ratio:
= (Current assets - Inventory and prepaid expense) ÷ Current liabilities
= ($97,000 - $37,000) ÷ $54,000
= $60,000 ÷ $54,000
= 1.11
