Exercise 193 Booker Corporation had the following comparative current assets and current liabilities: Dec. 31, 2017...

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

Expert Solution

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

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