Question

The following data were taken from the balance sheet of Nilo Company at the end of two recent fiscal years:

				Current Year			Previous Year
Current assets:
Cash				$340,500			$268,800
Marketable securities				394,200			302,400
Accounts and notes receivable (net)				161,300			100,800
Inventories				1,056,000			683,200
Prepaid expenses				544,000			436,800
	Total current assets			$2,496,000			$1,792,000
Current liabilities:
Accounts and notes payable
	(short-term)			$371,200			$392,000
Accrued liabilities				268,800			168,000
	Total current liabilities			$640,000			$560,000

a. Determine for each year (1) the working capital, (2) the current ratio, and (3) the quick ratio. Round ratios to one decimal place.

			Current Year			Previous Year
1. Working capital	$			$
2. Current ratio
3. Quick ratio

b. The liquidity of Nilo has................... from the preceding year to the current year. The working capital, current ratio, and quick ratio have all..................... . Most of these changes are the result of an................... in current assets relative to current liabilities.

Answer 1

a. 1. Working Capital = Current Assets – Current Liability

Current Year Working Capital = $2,496,000 - $ 640,000

Current Year Working Capital= $ 18, 56,000

Previous Year= $ 1,792,000 - $ 560,000

Previous Year Working Capital = $ 12, 32,000.

2. Current ratio = Current Assets / Current Liability
Current Year Current ratio = $2,496,000 / $ 640,000
Current Year Current ratio = 3.9 times

Previous Year Current Ratio = Current Assets / Current Liability
Previous Year Current Ratio = $ 1,792,000 / $ 560,000
Previous Year Current Ratio = 3.2 times

3. Quick Assets=
Cash- $ 340500
Marketable Securities= $ 394,200
Accounts and notes receivable= $ 161,300
Prepaid Expense: 544,000
______________________________________

Current year quick assets: 14, 40,000

Quick Liability
Accounts and Note payable = $371,200
Accrued Liabilities                  = $ 268800
_____________________________________

Current year quick Liability = $ 640000

Current Year Quick Ratio = Current Assets / Current Liability
Current Year Quick Ratio = 14, 40,000 /$ 640000
Current Year Quick Ratio = 2.25 times

Cash- $ 268800
Marketable Securities= $ 302400
Accounts and notes receivable= $ 100800
Prepaid Expense: $ 436,800
______________________________________

Previous year quick assets: 11, 08,800

Quick Liability:

Accounts and Note payable = $392,000
Accrued Liabilities                  = $ 168000
_____________________________________

Previous year quick Liability = $ 560000

Previous Year Quick Ratio = Current Assets / Current Liability
Previous Year Quick Ratio = 11, 08,800/$ 560000
Previous Year Quick Ratio = 1.98 times

b) The liquidity of Nilo has Increase from the preceding year to the current year. The working capital, current ratio, and quick ratio have all Increases. Most of these changes are the result of an Increase in current assets relative to current liabilities.