The following data were taken from the balance sheet of OutdoorSupplier Company:
ID: 2457690 • Letter: T
Question
The following data were taken from the balance sheet of OutdoorSupplier Company:
Dec. 31,2008 Dec. 31, 2007
Cash 325,000 300,000
Marketablesecurities 270,000 256,000
Accounts and notes receivable(net) 440,000 430,000
Inventories 675,000 557,000
Prepaidexpenses 130,000 81,000
Accounts and notes payable(short-term) 425,000 450,000
Accruedliabilities 150,000 130,000
(Text says: (a) 2008 working capital,$1,265,000)
Explanation / Answer
For 2007 1. Working Capital Current assets - current liabilities 1,624,000 - 580,000 = 1,044,000 2.Current Ratio Current assets Current liabilities = 1,624,000 580,000 = 2.8 3. Quick Ratio Cash + Marketable securities + Receivables Current liabilities = 986,000 / 580,000 = 1.7 For 2008 1. Working Capital Current assets - current liabilities 1,840,000 - 575,000 = 1,265,000 2.Current Ratio Current assets / Current liabilities = 1,840,000 / 575,000 = 3.2 3.Quick Ratio Cash + Marketable securities + receivables Current liabilities = 1,035,000 / 575,000 = 1.8 Question 2 Liquidity is a company's ability to pay its debt and the liquidityratio is both quick ratio and current ratio. By looking into the quick ratio for both years, they are above 1and it means the current assets are more than the currentliabilities and the company is able to meet its obligations in thenear short term.
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