Question

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As a consultant for Acme Engineering you have been able to establish the following parameters from their Financial Statements:

Item

Amount

Cash

$200,000

Securities

$90,000

Accounts Receivable

$300,000

Inventories

$400,000

Prepaid Expenses

$16,000

Accounts Payable

$630,000

Other Liabilities

$180,000

Calculate the following parameters:

Total Assets

Total Liabilities

Working Capital

Current Ratio

Acid Test Ratio

Answer 1

Total Assets = Cash + Securities + Accounts Receivable + Inventories + Prepaid Expenses = 200000 + 90000 + 300000 + 400000 + 16000 = 1006000

Total Liabilities = Accounts Payable + Other Liabilities = 630000 + 180000 = 810000

(assume Other Liabilities is current liability)

Working Capital = Current Assets - Current Liabilities = Cash + Securities + Accounts Receivable + Inventories + Prepaid Expenses - Accounts Payable - Other Liabilities = 1006000 - 810000 = 196000

(if it is assumed Other Liabilities is non current liability)

Working Capital = Current Assets - Current Liabilities = Cash + Securities + Accounts Receivable + Inventories + Prepaid Expenses - Accounts Payable = 1006000 - 630000 = 376000

(assume Other Liabilities is current liability)

Current Ratio = Current Assets / Current Liabilities = (Cash + Securities + Accounts Receivable + Inventories + Prepaid Expenses) / (Accounts Payable + Other Liabilities) = 1006000 / 810000 = 1.24

(if it is assumed Other Liabilities is non current liability)

Current Ratio = Current Assets / Current Liabilities = (Cash + Securities + Accounts Receivable + Inventories + Prepaid Expenses) / (Accounts Payable ) = 1006000 / 630000 = 1.60

(assume Other Liabilities is current liability)

Quick Ratio = Quick Assets / Current Liabilities = (Cash + Securities + Accounts Receivable ) / (Accounts Payable + Other Liabilities) = ( 200000 + 90000 + 300000 ) / 810000 = 590000 / 810000 = 0.73

(if it is assumed Other Liabilities is non current liability)

Quick Ratio = Quick Assets / Current Liabilities = (Cash + Securities + Accounts Receivable ) / (Accounts Payable + Other Liabilities) = ( 200000 + 90000 + 300000 ) / 630000 = 590000 / 630000 = 0.94