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Exercise 9-7 Working capital and current ratio LO 9-2 On June 30, 2018, Adams Company’s total...

Exercise 9-7 Working capital and current ratio LO 9-2

On June 30, 2018, Adams Company’s total current assets were $497,000 and its total current liabilities were $279,000. On July 1, 2018, Adams issued a long-term note to a bank for $39,600 cash.

Required

Compute Adams’s working capital before and after issuing the note.

Compute Adams’s current ratio before and after issuing the note. (Round your answers to 1 decimal place.)

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Homework Answers

Answer #1

1. working capital = current assets - current liabilities.

before issuing the note = 497,000 - 279,000

=>218,000.

after issuing the note = 497,000 + 39,600 - 218,000 =>318,600.

(the cash received 39,600 increases current assets, but long term note payable will not increase current liabilities).

2nd:

current ratio = current assets / current liabilities.

before note issue = 497,000 / 279,000 =>1.8.

after nnote issue = (497,000 + 39,600) / 279,000 =>1.9.

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