3.00 points Norsk Optronics, ALS, of Bergen, Norway, had a current ratio of 4 on

Question

3.00 points Norsk Optronics, ALS, of Bergen, Norway, had a current ratio of 4 on June 30 of the current year. On that date, the company's assets were Cash Accounts receivable, net Inventory Prepaid expenses Plant and equipment, net $ 73,000 400,000 720,000 12,000 1,760,000 Total assets $2,965,000 Required 1. What was the company's working capital on June 30? 2. What was the company's acid-test ratio on June 30? (Round your answer to 2 decimal places.) test ratio 3 The company paid an account payable of $36,000 immediately after June 30 a What effect did this transaction have on working capital Working cepital would decrease Warking capital woule not be affected b. What efect did this transection have Current ratio would indraase Crrent ratie would decres Current ratio would not be

Explanation / Answer

Current ratio = Current assets / Current liabilities

4 = (Cash + Accounts receivable + Inventory + Prepaid expenses) / Current liabilities

4 = (73,000 + 400,000 + 720,000 + 12,000) / Current liabilities

4 = 1,205,000 / Current liabilities

Current liabilities = 301,250

1. Working capital = Current assets - Current liabilities

Working capital = 1,205,000 - 301,250

Working capital = 903,750

2. Acid test ratio = (Cash + Accounts receivable) / Current liabilities

= (73,000 + 400,000) / 301,250

= 1.57 times

3.

a. Working capital = (1,205,000 - 36,000) - (301,250 - 36,000)

Working capital = 903,750

Working capital would not be affected.

b. Current ratio = Current assets / Current liabilities

Current ratio = (1,205,000 - 36,000) / (301,250 - 36,000)

Current ratio = 4.41 times

Current ratio would increase.

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