Question

Presented here are the comparative balance sheets of Hames Inc. at December 31, 2020 and 2019. Sales for the year ended December 31, 2020, totaled $660,000.

HAMES INC. Balance Sheets December 31, 2020 and 2019
	2020					2019
Assets
Cash		$	25,000				$	19,000
Accounts receivable			78,000					72,000
Merchandise inventory			103,000					99,000
Total current assets		$	206,000				$	190,000
Land			50,000					40,000
Plant and equipment			125,000					110,000
Less: Accumulated depreciation			(65,000	)				(60,000	)
Total assets		$	316,000				$	280,000
Liabilities
Short-term debt		$	18,000				$	17,000
Accounts payable			66,400					75,000
Other accrued liabilities			20,000					18,000
Total current liabilities		$	104,400				$	110,000
Long-term debt			22,000					30,000
Total liabilities		$	126,400				$	140,000
Stockholders’ Equity
Common stock, no par, 100,000 shares authorized 40,000 and 25,000 shares issued, respectively		$	74,000				$	59,000
Retained earnings:
Beginning balance		$	81,000				$	85,000
Net income for the year			54,600					1,000
Dividends for the year			(20,000	)				(5,000	)
Ending balance		$	115,600				$	81,000
Total stockholders’ equity		$	189,600				$	140,000
Total liabilities and stockholders’ equity		$	316,000				$	280,000

1. Calculate working capital at December 31, 2020.
2. Calculate the current ratio at December 31, 2020. (Round your answer to 2 decimal places.)
3. Calculate the acid-test ratio at December 31, 2020. (Round your answer to 2 decimal places.)

Answer 1

i. Working capital at Dec 31,2020

= Total current assets at Dec 31,2020 - Total current liabilities at Dec 31,2020

= $206,000 - $104,400

= $101,600

ii.Current ratio at Dec 31,2020

= Total current assets at Dec 31,2020 ÷ Total current liabilities at Dec 31,2020

= $206,000 ÷ $104,400

= 1.97

iii. Acid-test ratio at Dec 31,2020

= (Total current assets at Dec 31,2020 - Merchandise inventory at Dec 31,2020) ÷ Total current liabilities

= ($206,000 - $103,000) ÷ $104,400

= $103,000/$104,400

= 0.99