In: Accounting
Exercise 193 Booker Corporation had the following comparative current assets and current liabilities: Dec. 31, 2017 Dec. 31, 2016 Current assets Cash $60,000 $30,000 Short-term investments 40,000 10,000 Accounts receivable 55,000 95,000 Inventory 110,000 90,000 Prepaid expenses 35,000 20,000 Total current assets $300,000 $245,000 Current liabilities Accounts payable $140,000 $110,000 Salaries payable 40,000 30,000 Income tax payable 20,000 15,000 Total current liabilities $200,000 $155,000 During 2017, credit sales and cost of goods sold were $750,000 and $400,000, respectively. Compute the following liquidity measures for 2017: (Round current and acid-test ratios to 2 decimal places, e.g. 52.71.) 1. Current ratio :1 2. Working capital $ 3. Acid-test ratio :1 4. Accounts receivable turnover times 5. Inventory turnover times
Requirement | |||||
Computation of the following Liquidity measures for 2017 | |||||
Here only the ratios are computed No Interpretation is given as not mentioned in | |||||
the problem | |||||
31st Dec 2017 | 31st Dec 2016 | ||||
Current Assets | |||||
Cash | $60,000 | $30,000 | |||
Short Term Investment | $40,000 | $10,000 | |||
Accounts Receivable | $55,000 | $95,000 | |||
Inventory | $110,000 | $90,000 | |||
Prepaid Expenses | $35,000 | $20,000 | |||
Total Current Assets | $300,000 | $245,000 | |||
Current Liabilities | |||||
Account Payable | $140,000 | $110,000 | |||
Salaries Payable | $40,000 | $30,000 | |||
Income Tax Payable | $20,000 | $15,000 | |||
Total Current Liabilities | $200,000 | $155,000 | |||
Computation of the different Liquidity Measures | |||||
1. Current Ratio |
CA/CL | ||||
300000/$200000 | |||||
1.5 | |||||
2.Working Capital for 2017 | CA-CL | ||||
$300000-$200000 | |||||
$100,000 | |||||
Working Capital for 2016 | $245000-$155000 | ||||
$90,000 | |||||
The ratio is also calculated not given in question | |||||
and Working Capital Turnover Ratio | Revenue/Avg Working Capital | ||||
$750000/$95000 | |||||
7.85 | |||||
Calculation of Average Working Capital | Opening WC+Closing WC/2 | ||||
($90000+$100000)/2 | |||||
$95,000 | |||||
3.Quick Assets/CL or Acid Test Ratio | cash and cash equivalents +Short Term Investment +Current Receivables/CL | ||||
($60000+$40000+$55000)/$200000 | |||||
5.28 | |||||
4.Accounts Receivable Turnover Times | Net Credit Sales/Avergae Accounts Receivable | ||||
$750000/$75000 | |||||
10 | |||||
Average Accounts Receivable | ($55000+$95000)/2 | ||||
$75,000 | |||||
5.Inventory Turnover Times | Cost of Goods Sold/Average Inventory | ||||
$400000/$100000 | |||||
4 | |||||
Average Inventory | ($110000+$90000)/2 | ||||
$100,000 |