Question

Home Insert Draw Page Layout Formulas Data Review View LA Paste 128 Arial 11 AA == BI U B OA V fix x Answer each question in the following 5 scenerios (each scenerio is in its own box with 2-3 related 4 questions). Scroll down to be sure you find all scenerios. 6 Jack Corporation has provided the following financial data: Cash Accounts receivable Total current assets Total current liabilities $188,000 $285,000 $709,000 $167.000 13 Required: 1 Compute the company's working capital. 2 Compute the company's current ratio. 3 Compute the company's acid test ratio. 4 Could a company's acid test ratio ever be higher than their current ratio, why or Why not? Gray Corporation has provided the following financial data from its balance sheet: Accounts receivable Year 2 $112.000 $174,000 $1,236,000 Year 1 $110,000 $150,000 $1,250,000 Inventory Total assets 39 Sales on account in Year 2 totaled $1,450,000 and cost of goods sold totaled $900,000 40 1 Calculate the company's accounts receivable turnover for Year 2 2 Calculate the company's average collection period for Year 2. Problem Problem 2 +

Answer 1

1.

Working Capital = Current assets - Current liabilities

= 709,000-167,000

= $542,000

2.

Current ratio = Current assets / Current liabilities

= 709,000/167,000

= 4.25

3.

Acid test ratio = ( Cash + Accounts receivable)/Current liabilities

= (188,000+285,000)/167,000

= 2.83

4.

Acid test ratio can never be higher than current ratio. It happens because while calculating acid test ratio some current assets like inventories and prepaid expenses are excluded.

1.

Average receivable = ( Beginning accounts receivable + Ending accounts receivable)/2

= (110,000+112,000)/2

= $111,000

accounts receivable turnover ratio for year 2 = Net sales/Average receivable

= 1,450,000/111,000

= 13.06

2.

Average collection period for year 2 = 365/13.06

= 30 days

Kindly comment if you need further assistance.

Thanks‼!