Whiterock Corporation issued a bond issue to investors on January 2, 2016. The 20-year corporate bond...
| Whiterock Corporation issued a bond issue to investors on January 2, 2016. The 20-year corporate bond | |||||
| has a contract rate of 5.5%. The contract terms specified the following requirements at the end of each year | |||||
| until the bonds mature: | |||||
| Working capital of $2,000,000 | |||||
| Current ratio of 2.0 | |||||
| Quick ratio of 1.8 | |||||
| Whiterock calculated working capital, current ratio and the quick ratio based upon the following determinations: | |||||
| Current Liquidity Measurements | |||||
| Current Assets: | Working Capital = Current Assets - Current Liabilities | ||||
| Cash | 1,200,000 | 2,948,000 | |||
| Marketable securities | 260,000 | ||||
| Accounts receivable | 2,750,000 | ||||
| Inventories | 440,000 | Current Ratio | |||
| Prepaid Insurance and Rent | 48,000 | 2.00 | |||
| Intangible Assets | 1,200,000 | ||||
| Total Current Assets | 5,898,000 | ||||
| Quick Ratio | |||||
| Current Liabilities | 1.83 | ||||
| Accounts Payable | 1,600,000 | ||||
| Wages and Salaries Payable | 350,000 | ||||
| Notes Payable (Short-term) | 1,000,000 | 2,950,000 | |||
| What is the Revised Liquidity Measures: | |||||
| Working Capital = Current Assets - Current Liabilities | |||||
| Current Ratio = | Current Assets | ||||
| Current Liabilities | |||||
| Quick Ratio = | Quick Assets | ||||
| Current Liabilities | |||||
Homework Answers
| Current Assets: | |
| Cash | 1,200,000 |
| Marketable securities | 260,000 |
| Accounts receivable | 2,750,000 |
| Inventories | 440,000 |
| Prepaid Insurance and Rent | 48,000 |
| Total current assets | 4,698,000 |
| Current Liabilities | |
| Accounts Payable | 1,600,000 |
| Wages and Salaries Payable | 350,000 |
| Notes Payable (Short-term) | 1,000,000 |
| Total current liabilities | 2,950,000 |
| Working Capital = Current Assets - Current Liabilities | |
| 4698000-2950000= | 1748000 |
| Current Ratio = | |
| Current assets/Current Liabilities | |
| 4698000/2950000= | 1.59 |
| Quick Ratio = | |
| (Current assets-Inventories & Prepaid assets)/Current Liabilities | |
| (4698000-440000-48000)/2950000= | 1.43 |
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