1 - A company with $70,000 in current assets and $50,000 in current liabilities

Question

1 - A company with $70,000 in current assets and $50,000 in current liabilities pays a $1,000 current liability. As a result of this transaction, the current ratio and working capital will

a.both increase

b.increase and remain the same, respectively

c.remain the same and decrease, respectively

d.both decrease

2 -

The following items are reported on a company's balance sheet:

Round your answers to two decimal places.

a. Determine the current ratio.
     

b. Determine the quick ratio.
     

Cash $278,600 Marketable securities 109,900 Accounts receivable 253,700 Inventory 184,900 Accounts payable 297,900

Explanation / Answer

1) Payment of current liability would decrease both current asset and current liability by equal amount. Now since the current ratio is higher than one, equal deduction in both assets and liabilities would increase the current ratio but working capital would remain unchanged

2) Current ratio = (Cash + marketable security + receivable + inventory) / Accounts payable

= (278600 + 109900 + 253700 + 184900) / 297900 = 2.78

Quick ratio = (Cash + marketable security + receivable ) / Accounts payable

= (278600 + 109900 + 253700 ) / 297900 = 2.16

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