apter 13 eBook Calculator Effect of Transactions on Working Capital, Current Rat
ID: 1175604 • Letter: A
Question
apter 13 eBook Calculator Effect of Transactions on Working Capital, Current Ratio, and Quick Ratio The following account balances are taken from the records of Liquiform Inc.: Cash Short-term investments Accounts receivable Inventony Prepaid insurance Accounts payable Taxes payable Salaries and wages payable 40,000 Short-term loans payable Required: 1. Use the information provided to compute the amount of working capital and Liquiform's current and quick ratios (round to two decimal points) Working capital Current ratio Quick ratio 2. Determine the effect that each of the following transactions will have on Liquiform's working capital, current ratio, and quick ratio by recalculating each and then indicating whether the measure is increased, decreased, or not affected by the independently; that is, assume that it is the only transaction that takes place. Enter all amounts as positive numbers. For the ratios, round to three decimal places. ? 70,000 60,000 80,000 100,000 10,000 75,000 25,000 60,000 Effect on Quick Ratio Effect on Effect on Working Capital Working Capital Current Ratio Current Ratio Quick Ratio a. Purchased inventory on account, $20,000 b. Purchased inventory for cash, $15,000 c. Paid suppliers on account, $30,000 to 1 to 1 to 1 to 1 to 1 to 1 :50 PM 7/24/2018Explanation / Answer
Answer to Q1)
Working Capital = Current Assests - Current Liabilities
Current Assests = Cash Through Prepaid Insurance = 70,000 + 60,000 + 80,000 + 100,000 + 10,000 = $320,000
Current Liabilities = Accounts Payables Through Short Term Loans Payables = 75,000 + 25,000 + 40,000 + 60,000 = $200,000
Working Capital = 320,000 - 200,000 = $120,000
Current Ratio = Current Assets/Current Liailities = 320,000 / 200,000 = 1.6
Quick Ratio = (Current Assets - Inventory - Prepaid Expenses)/Current Liabilites = (320000-100000-10000) / 200000 = 1.05
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