Question

Determine the (a) working capital, (b) current ratio, and (c) quick ratio. Round ratios to one decimal place.The following data are taken from the balance sheet at the end of the current year.Cash $154,000 Accounts receivable 210,000 Inventory 240,000 Prepaid expenses Temporary investments Property, plant, and 15,000 350,000 375,000 equipment Accounts payable 245,000 Accrued liabilities 4,000 Income tax payable 10,000 Notes payable, short-term 85.000 MacBook Air

Answer 1

Answer:

a. The working capital is $625,000

b. The current ratio is 2.82

c. The quick ratio is 2.08

Explanation:

In order to calculate the working capital first we need to calculate the Current Assets and the Current Liablities as follows:

Current Assets = Cash + Accounts receivable + Inventory + Prepaid Expenses + Temporary investments

= 154,000+210,000+240,000+15,000+350,000

=$969,000

Current Liablities = Accounts payble + Accrued liablities + Income tax payable + Notes payable,short term

= 245000+4000+10000+85000

=$344,000

a. Therefore, working capital = Current Assets - Current liabilities

= 969000 - 344000

= $625,000

b. To calculate the current ratio we have to use the following formula:

current ratio = Current Assets / Current liabilities

=969,000 /344,000

= 2.82

c. To calculate the quick ratio we have to use the following formula:

quick ratio = (Cash + Accounts receivable + Temporary investments ) / Current liabilities

= (154,000+210,000+350,000) / 344,000

= 2.08