Answer:
Liquidity measures for the year 2017 are as under:
Current Ratio = 1.5
Working Capital = $100,000
Acid Test Ratio = 0.95
Accounts Receivables Turnover = 10 times
Inventory turn over = 4 times
Explanation:
<u>Current Ratio</u>
Current Ratio = Current Assets ÷ Current Liabilities
<u>Dec 31, 2017</u> <u>Dec 31, 2016
</u>
$300,000 ÷ $200,000 $245,000 ÷ $155,000
Current Ratio 1.5 1.6
<u>Working Capital</u>
Working Capital = Current Assets – Current Liabilities
<u>Dec 31, 2017</u> <u>Dec 31, 2016
</u>
$300,000 – $200,000 $245,000 – $155,000
Working Capital $100,000 $90,000
<u>Acid Test Ratio</u>
Acid Test Ratio = (Current Assets – Inventory) ÷ Current Liabilities
<u>Dec 31, 2017</u> <u>Dec 31, 2016</u>
($300,000 – $110,000) ÷ $200,000 ($245,000 – $90,000) ÷ $155,000
Acid Test Ratio 0.95 1.00
<u>Accounts Receivables Turnover Times</u>
Accounts Receivables Turnover = Credit Sales ÷ Average Accounts Receivables
Average Accounts Receivables = (Opening Accounts Receivables + Closing Accounts Receivables) ÷ 2
Average Accounts Receivables = ($55,000 + $95,000) ÷ 2 = $75,000
Accounts Receivables Turnover = $750,000 ÷ $75,000 = 10 Times
<u>Inventory Turnover Times</u>
Inventory Turnover = Cost of Goods Sold ÷ Average Inventory
Average Inventory = (Opening Inventory + Closing Inventory) ÷ 2
Average Inventory = ($110,000 + $90,000) ÷ 2 = $100,000
Inventory Turnover = $400,000 ÷ $100,000 = 4 Times
