Denna Company’s working capital accounts at the beginning of the year follow Col

Question

Denna Company’s working capital accounts at the beginning of the year follow

   

Collected cash on accounts receivable, $70,100.

Compute the following amounts and ratios as of the beginning of the year: (Round your ratios to 2 decimal places.)

Working Capital-

Current Ratio-

Acid-Test Ratio-

  Cash $ 61,000       Marketable securities $ 28,300       Accounts receivable, net $ 328,400       Inventory $ 436,600       Prepaid expenses $ 6,200       Accounts payable $ 183,800   Notes due within one year $ 82,000       Accrued liabilities $ 51,900

Explanation / Answer

We summarize as Current Assets Cash 61000 Marketable securities 28300 Accounts receivables ( Net) 328400 Inventory 436600 Prepaid expense 6200 Total Current Assets 860500 Current liabilities Accounts Payable 183800 Notes 82000 Accrued liabilities 51900 Total Current Liabilities 317700 Working capital = Current assets - current liabilities It measures requirement of working capital in a firm = 860500 - 317700 542800 Current Ratio = Current Assets / Current Liabilities Current ratio measures ability of a company to use its current assets to pay back its current liabilities. = 860500 / 317700 2.71 Acid test ratio = ( cash + marketable securities + acounts receuvables) / current liabilities it measures ability of a company to use its near cash to pay back its current liabilities = (61000+28300+328400)/317700 1.31

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