1. Calculate the Current Ratio, the Quick ratio and working capital for a restau

Question

1. Calculate the Current Ratio, the Quick ratio and working capital for a restaurant from the following data:

2. A restaurant reported the following inventory and cost of sales for July which had 31 operating days. Calculate the inventory turnover and days of inventory ratios.

Cash $14,000 Credit Card Receivables $950 Accounts Receivable $1,260 Quick Assets Food Inventory $4,000 Prepaid Expense $1,200 Current Assets Current Liabilities $12,500 Quick (or Acid Test) Ratio: Quick Ratio Formula: Current Ratio: Current Ratio Formula: Working Capital Working Capital Formula:

2. A restaurant reported the following inventory and cost of sales for July which had 31 operating days. Calculate the inventory turnover and days of inventory ratios.

Inventory July 1 $       8,300 Inventory July 31 $       8,800 Inventory Average Cost of Sales $     39,000 Inventory Turnover Operating days in July Average Days of Inventory Inventory Turnover Ratio Formula: Days of Inventory Formula:

Explanation / Answer

1. Quick assets = Cash + Credit Card Receivables + Accounts Receivable = 14,000+950+1,260 = $16,210

Current assets = Quick assets + Food inventory + Prepaid Expense = 16,210+4,000+1,200 = $21,410

Current liabilities = $12,500

Quick (or acid test) ratio = Quick assets ÷ Current liabilities = 16,210÷12,500 = 1.2968

Current ratio = Current assets ÷ Current liabilities = 21,410÷12,500 = 1.7128

Working Capital = Current assets - Current liabilities = 21,410-12,500 = $8,910

2. Inventory Average = (Inventory July 1 + Inventory July 31) ÷2 = (8,300+8,800)÷2 = 17,100÷2 = $8,550

Cost of sales = $39,000

Inventory Turnover = Cost of sales ÷ Inventory Average = 39,000÷8,550 = 4.5614

Operating days in July = 31 days

Average days of inventory = Operating days of inventory ÷ Inventory Turnover = 31÷4.5614 = 6.79 days = 6.8 days = 7 days

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