Evans inc., had current liabilities at November 30 of $137,400. The firm\'s curr

Question

Evans inc., had current liabilities at November 30 of $137,400. The firm's current ratio at that date was 1.8.
A. Calculate the firm's current assets and working capital at November 30.

B. Assume that management paid $30,600 of accounts payable on November 29.
Calculate the current ratio and working capital at November 30 as if the November 29 payment had not been made. Round your current ratio to two decimal places.

C.Explain the changes, if any, to working capital and the current ratio that would be caused by the November 29 Payment.

Explanation / Answer

A.CR= CA/CL CA= 137,400x1.8= $247320 WC= CA-CL = 247320- 137,400= $109920 B. . Assume that management paid $30,600 of accounts payable on November 29. CL will decrease to 106800 (137,400-30,600) WC= 247320- 106800= $140520 CR= 247320/106800= 2.3157 IF payment had not been made WC= 247320- 137,400= $109920 CR= 247320/137,400= 1.8 the WC will increase since the CL is payed(decreased) the CR will also increase because the CL has decreased.

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