Question

Brief Exercise 24-08 Answer each of the questions in the following unrelated situations. (a) The current ratio of a company is 6:1 and its acid-test ratio is 1:1. If the inventories and prepaid items amount to $511,000, what is the amount of current liabilities? Current Liabilities as (b) A company had an average inventory last year of $203,000 and its inventory turnover was 6. If sales volume and unit cost remain the same this year as last and inventory turnover is 8 this year, what will average inventory have to be during the current year? (Round answer to o decimal places, e.g. 125.) Average Inventory (c) A company has current assets of $93,000 (of which $38,000 is inventory and prepaid items) and current liabilities of $38,000. What is the current ratio? What is the acid-test ratio? If the company borrows $14,000 cash from a bank on a 120-day loan, what will its current ratio be? What will the acid-test ratio be? (Round answers to 2 decimal places, e.g. 2.50.) Current Ratio Acid Test Ratio New Current Ratio New Acid Test Ratio (d) A company has current assets of $558,000 and current liabilities of $221,000. The board of directors declares a cash dividend of $174,000. What is the current ratio after the declaration but before payment? What is the current ratio after the payment of the dividend? (Round answers to 2 decimal places, e.g. 2.50.) Current ratio after the declaration but before payment Current ratio after the payment of the dividend

Answer 1

A	Current Ratio=	Current Assets/Current Liabilities
	6=	Current Assets/Current Liabilities
	6Current Liabilities=Current Assets
	Acid Test Ratio=	(Current Assets-Prepaid Expense-Inventories)/Current Liabilities
	1=	(Current Assets-Prepaid Expense-Inventories)/Current Liabilities
	Current Liabilties=	(Current Assets-Prepaid Expense-Inventories)
	Current Liabilties=	(6 Current Liabilties-Prepaid Expense-Inventories)
	Current Liabilties=	(6 Current Liabilties-11000)
	5 Current Liabilties=10000
	Current Liabilties=2000
B	Inventory Turnover=Sales/Av Inventory
	6=Sales/203000
	Sales LY=1218000
	Inventory Turnover=Sales/Av Inventory
	8=1218000/Av Inventory
	Average Inventory=152250
C	Current Ratio=	Current Assets/Current Liabilities
	Current Ratio=	93000/38000
	Current Ratio=	2.45
	Acid Test Ratio=	(Current Assets-Prepaid Expense-Inventories)/Current Liabilities
	Acid Test Ratio=	(93000-38000)/38000
		1.45
	Current Ratio=	Current Assets/Current Liabilities
	Current Ratio=	(93000+14000)/(38000+14000)
	Current Ratio=	2.06
	Acid Test Ratio=	(Current Assets-Prepaid Expense-Inventories)/Current Liabilities
	Acid Test Ratio=	(93000-38000+14000)/(38000+14000)
		1.33
D	After Declaration:
	Current Ratio=	Current Assets/Current Liabilities
		558000/(221000+174000)
		1.41
	After Payment:
	Current Ratio=	Current Assets/Current Liabilities
		(558000-174000)/(221000)
		1.74