Exercise 17-8 Current position analysis The bond indenture for the 10-year, 10%
ID: 2356172 • Letter: E
Question
Exercise 17-8
Current position analysis
The bond indenture for the 10-year, 10% debenture bonds dated January 2, 2009, required working capital of $142,000, a current ratio of 1.7, and a quick ratio of 1.2 at the end of each calendar year until the bonds mature. At December 31, 2010, the three measures were computed as follows:
1. current assests:
Cash................................$170,000
Temporary Investments...........$80,000
Accounts and notes eceivables (net) $200,000
Inventories................................$60,000
Prepaid Expenses.........................$40,000
Intangible assests.........................$208,000
Property, plant, and equipment...........$92,000
total current assets (net) $850,000
Current Liabilites:
accounts and short term notes payable $160,000
Accured Liabilites.................................$340,000
Total current liabilites $500,000
Working Capial $350,000
2. Current ratio 1.7 $850,000 / $500,000
3. Quick ratio.........................1.2 $192,000 / $160,000
a. Several errors exist in the computations above. Correctly determine the three measures of current position analysis.
Working capital: $
Current ratio:
Quick ratio:
Explanation / Answer
Current Assets: Cash $170,000 Temparary Investments $80,000 Accounts receivable $200,000 Inventories $60,000 Prepaid expenses $40,000 Total current assets: $550,000 Current Liabilities: Accounts & short term notes payable $160,000 Accrued liabilities $340,000 Total current liabilities: $500,000 Working capital: Working Capital = Current Assets - Current Liabilities = 550000 - 500000 = $50,000 Current Ratio: Current ratio = Current assets / Current liabilities = 550000 / 500000 = 1.1 Quick Ratio: Quick ratio = (Cash + Accounts receivables+Short term investments) / Current liabilities = (170000+200000+80000)/500000 = 450000 / 500000 = 0.9 Quick ratio = (Cash + Accounts receivables+Short term investments) / Current liabilities = (170000+200000+80000)/500000 = 450000 / 500000 = 0.9Thank you... Current Assets: Cash $170,000 Temparary Investments $80,000 Accounts receivable $200,000 Inventories $60,000 Prepaid expenses $40,000 Total current assets: $550,000 Current Liabilities: Accounts & short term notes payable $160,000 Accrued liabilities $340,000 Total current liabilities: $500,000
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