Question

In: Finance

2.   The following data are taken from the sheet at the end of the current year:...

2.   The following data are taken from the sheet at the end of the current year:

Cash                                                                         543,000

Short-term Investments                                   826,000

Notes Payable, long-term                                235,000

Prepaid Insurance                                                 70,000

Accounts Payable                                               902,000

Accrued Liabilities                                               526,000

Inventory                                                          1,625,000

Accounts Receivable                                          117,000

Salaries Payable                                                  165,000

Intangible Assets                                                 500,000

Property, Plant and Equipment                1,800,000             

            

                                                          Computation          Interpretation—what does the result mean?

Compute:     a. Working capital:    ___________________   __________________________________

b. Current ratio:       ___________________   __________________________________

         c. Quick ratio:           ___________________   __________________________________

Solutions

Expert Solution

(a)-Working Capital

Working Capital = Total current assets – Total current liabilities

= [Cash + short-term, investments + Prepaid insurance + Inventory + Accounts receivables] – [Accounts payables + Accrued liabilities + Salaries payable]

= [$543,000 + $826,000 + $70,000 + $1,625,000 + $117,000] – [$902,000 + $526,000 + $165,000]

= $3,181,000 - $1,593,000

= $1,588,000

(b)-Current Ratio

Current Ratio = Total current assets / Total current liabilities

= [Cash + short-term, investments + Prepaid insurance + Inventory + Accounts receivables] / [Accounts payables + Accrued liabilities + Salaries payable]

= [$543,000 + $826,000 + $70,000 + $1,625,000 + $117,000] / [$902,000 + $526,000 + $165,000]

= $3,181,000 / $1,593,000

= 2.00 Times

(c)-Quick Ratio

Quick Ratio = [Total current assets – Inventory – Prepaid Insurance] / Total current liabilities

= [$3,181,000 - $1,625,000 - $70,000] / $1,593,000

= $1,486,000 / $1,593,000

= 0.93 Times

jeff jeffy answered 17 hours ago
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