1.
a. Working Capital is the difference between current assets and current liabilities.
b. Current ratio is current assets divided by current liabilities.
c. Quick ratio is current assets-prepaid expenses-inventories divided by current liabilities.
Amount ($) | ||
Cash | 273,500 | |
Temporary Investments | 140,900 | |
Accounts and Notes receivables (net) | 414,400 | |
Inventories | 492,100 | |
Prepaid Expenses | 25,900 | |
Total current assets (a) | 1,346,800 | |
Accounts payable | 181,300 | |
Notes Payable (short-term) | 259,000 | |
Accrued expenses | 77,700 | |
Total Current Liabilities (b) | 518,000 | |
a | Working Capital (a-b) | 828,800 |
b | Current Ratio (a/b) | 2.6 |
c | Quick ratio = (Current Assets-Inventories-Prepaid Expenses)/Current liabilities | 1.6 |
2.
Working capital, current ratio and quick ratio after the following transactions are as calculated below:
Transaction | Working capital | Current Ratio | Quick Ratio |
A-D | A/D | (A-B-C)/D | |
a | 828,800 | 2.6 | 1.6 |
b | 828,800 | 3.0 | 1.8 |
c | 828,800 | 2.4 | 1.4 |
d | 828,800 | 3.1 | 1.8 |
e | 724,800 | 2.2 | 1.3 |
f | 828,800 | 2.6 | 1.6 |
g | 1,087,800 | 3.1 | 2.1 |
h | 828,800 | 2.6 | 1.6 |
i | 1,346,800 | 3.6 | 2.6 |
j | 828,800 | 2.6 | 1.5 |
Working:
Transaction | Current Assets | Prepaid Expenses | Inventories | Current Liabilities |
A | B | C | D | |
1,346,800 | 25,900 | 492,100 | 518,000 | |
a | 1,346,800 | 25,900 | 492,100 | 518,000 |
b | 1,242,800 | 25,900 | 492,100 | 414,000 |
c | 1,411,800 | 25,900 | 557,100 | 583,000 |
d | 1,217,300 | 25,900 | 492,100 | 388,500 |
e | 1,346,800 | 25,900 | 492,100 | 622,000 |
f | 1,346,800 | 25,900 | 492,100 | 518,000 |
g | 1,605,800 | 25,900 | 492,100 | 518,000 |
h | 1,346,800 | 25,900 | 492,100 | 518,000 |
i | 1,864,800 | 25,900 | 492,100 | 518,000 |
j | 1,346,800 | 77,700 | 492,100 | 518,000 |
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