Question

can I know how I should to solve this problem of text book of Accounting from Warren / Reeve / Duchac ea 26, please. will be greta if I can see the step by step to understand better this topic. thanks

EE 4-6 p. 178 PAI SHOW ME HOW PE 4-6A Working capital and current ratio OBJ. 7 Balance sheet data for HQ Properties Company follows: 2016 2015 Current assets $2,175,000 $1,900,000 Current liabilities 1,500,000 1,250,000 a. Determine the working capital and current ratio for 2016 and 2015. b. Does the change in the current ratio from 2015 to 2016 indicate a favorable or an unfavorable trend?

Answer 1

Working Capital = Current Assets-Current Liabilities

Year 2016

= 2,175,000-1,500,000

= $675,000

Year 2015

= 1,900,000-1,250,000

= $750,000

Current Ratio = Current Assets/Current Liabilities

Year 2016

= 2,175,000/1,500,000 = 1.45 :1

Year 2015

= 1,900,000/1,250,000 = 1.2 :1

Based on above calculation and change in current ratio from 2015 to 2016 indicates favourable trend.