Question

Answer each of the questions in the following unrelated situations. (a) The current ratio of a company is 6:1 and its acid-test ratio is 1:1. If the inventories and prepaid items amount to $544,000, what is the amount of current liabilities? Current Liabilities (b) A company had an average inventory last year of $200,000 and its inventory turnover was 6. turnover is sales volume and unit cost remain the same this year as last and inventory this year, what will average inventory have to be during the current year? (Round answer to 0 decimal places, e. g. 125.) Average Inventory (c) A company has current assets of $99,000 (of which $39,000 is inventory and prepaid items) and current liabilities ratio? If the company borrows $17,000 cash from a bank on a 120-day loan, what will its current ratio be? What will the acid-test ratio be? (Round answers to 2 decimal places, e.g. 2.50.) f $39,000. What is the current ratio? What is the acid-test Current Ratio :1 Acid Test Ratio 1 New Current Ratio New Acid Test Ratio 1 (d) A company has current assets of $654,000 and current liabilities declaration but before payment? What is the current ratio after the payment of the dividend? (Round answers to 2 decimal places, e.g. 2.50.) $240,000. The board of directors declares a cash dividend of $183,000. What is the current ratio after the Current ratio after the declaration but before payment 1 Current ratio after the payment of the dividend 1

Answer 1

(a)	Current ratio =	Current assets / Current liabilities
	6/1 =	Current assets / Current liabilities
	6 x Currrent liabilites =	Current assets		Equation -1
	Given
	Acid-test ratio =	(Current assets - Inventories - prepaid items) / Current liabilities
	1/1 =	(Current assets - $544,000) / Current liabilities
	Currrent liabilites =	(Current assets - $544,000)		Equation -2
	Solving equation 1 & 2 we get,
	Current liabilities =	$108,800
	Current assets =	$652,800
(b)	Inventory turnover =	Cost of goods sold/Average inventory
	6 =	Cost of goods sold/$200,000
	Cost of goods sold =	$1,200,000
	Now
	Average inventory =	Cost of goods sold/ Inventory turnover
	=	$1,200,000/8
	=	$150,000
(c)	Current ratio =	Current assets / Current liabilities
	=	$99,000/$39,000
	=	2.54
	Acid-test ratio =	(Current assets - Inventories - prepaid items) / Current liabilities
	=	($99,000 - $39,000)/$39,000
	=	1.54
	After company borrows $17,000 cash from a bank on a 120 days loan, considering it current liabilities
	Current ratio =	Current assets / Current liabilities
	=	$99,000/$56,000
	=	1.77
	Acid-test ratio =	(Current assets - Inventories - prepaid items) / Current liabilities
	=	($99,000 - $39,000)/$56,000
	=	1.07
(d)	Before payment
	Current ratio =	Current assets / Current liabilities
	=	$654,000/$240,000
	=	2.73
	After payment
	Current ratio =	Current assets / Current liabilities
	=	$471,000/$240,000
	=	1.96