Question

The following data are taken from the balance sheet at the end of the current year. Determine the (a) working capital, (b) current ratio, and (c) quick/acid-test ratio. Present figures used in your computations. Round ratios to the nearest tenth.

Accounts payable	$145,000
Accounts receivable	110,000
Accrued liabilities	4,000
Cash	80,000
Income tax payable	10,000
Inventory	140,000
Marketable securities	250,000
Notes payable, short-term	85,000
Prepaid expenses	15,000

Answer 1

Answer:

a. Working capital = Total current assets - Total current liabilities = $595,000 - $244,000 = $351,000

b, Current ratio = Total current assets ÷ Total current liabilities = $595,000 ÷ $244,000 = 2

c. Quick ratio = Total quick assets ÷ Total current liabilities = $440,000 ÷ $244,000 = 1.80

Workings:

Current assets:
Cash	80,000
Marketable securities	250,000
Accounts receivable	110,000
Inventory	140,000
Prepaid expenses	15,000
Total current assets	595,000
Current liabilities:
Accounts payable	145,000
Accrued liabilities	4,000
Income tax payable	10,000
Notes payable, short-term	85,000
Total current liabilities	244,000
Quick assets:
Cash	80,000
Marketable securities	250,000
Accounts receivable	110,000
Total quick assets	440,000