Question

Working Capital and Current Ratio The balance sheet of Kries, Inc. includes the following items: Cash...

Working Capital and Current Ratio

The balance sheet of Kries, Inc. includes the following items:

Cash $23,000 Accounts payable $ 52,200
Accounts receivable 13,000 Salaries payable 1,200
Inventory 45,000 Capital stock 100,000
Prepaid insurance 800 Retained earnings 5,700
Land 80,000

Required:

1. Determine the current ratio and working capital. If required, round current ratio to two decimal places.

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Answer #1

Current Ratio = Current Assets/Current Liabilities = (Cash + Accounts receivable + Inventory + Prepaid insurance)/(Accounts Payable + Salaries Payable) = (23,000+13000+45000+800)/(52200+1200) = 81800/53400 = 1.53

Working Capital = Current Assets - Current Liabilities =  (Cash + Accounts receivable + Inventory + Prepaid insurance) -(Accounts Payable + Salaries Payable) = (23,000+13000+45000+800)-(52200+1200) = 81800-53400 = 28,400

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