Dane Corporation had the following comparative current assets and current liabil
ID: 2421985 • Letter: D
Question
Dane Corporation had the following comparative current assets and current liabilities:
Dec. 31, 2014 Dec. 31, 2013
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Current assets
Cash $ 60,000 $ 40,000
Marketable securities 50,000 10,000
Accounts receivable 70,000 100,000
Inventory 100,000 90,000
Prepaid expenses 30,000 20,000
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Total current assets $310,000 $260,000
Current liabilities
Accounts payable $140,000 $100,000
Salaries payable 50,000 30,000
Income tax payable 20,000 10,000
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Total current liabilities $210,000 $140,000
During 2014, credit sales and cost of goods sold were $800,000 and $400,000, respectively. INSTRUCTIONS Compute the following liquidity measures for 2014 (round to 2 decimal places) SHOW ALL CALCULATIONS:
1. Current ratio. 2. Working capital. 3. Acid-test ratio. 4. Receivables turnover. 5. Inventory turnover.
Explanation / Answer
Requirement 1:
Current Ratio:
Current Assets = $310000
Current Liabilities = $210000
Current Ratio = Current Assets / Current Liabilities
= 310000 / 210000
= 1.48
Requirement 2:
Working Capital:
Current Assets = $310000
Current Liabilities = $210000
Working Capital = Current Assets - Current Liabilities
= 310000 - 210000
= 100000
Requirement 3:
Acid Test Ratio:
Acid Test Ratio is also known as Quick Ratio.
Quick Assets = Current Assets – Prepaid Expenses
= $310000 - $30000
= $280000
Current Liabilities = $210000
Acid Test Ratio = Quick Assets / Current Liabilities
= 280000 / 210000
= 1.33
Requirement 4:
Receivables Turnover:
Net Credit Sales = $800000
Average Accounts Receivable = (70000 + 100000) / 2 = $85000
Receivables Turnover = Net Credit Sales / Average Accounts Receivable
= 800000 / 85000
= 9.41
Requirement 5:
Inventory Turnover:
Cost of Goods Sold = $400000
Average Inventory = (100000 + 90000)/2 = 190000/2 = $95000
Inventory Turnover = Cost of Goods Sold / Average Inventory
= 400000 / 95000
= 4.21
S.No
Requirement
Answer
1
Current Ratio
1.48
2
Working Capital
$100000
3
Acid Test Ratio
1.33
4
Receivables Turnover
9.41
5
Inventory Turnover
4.21
S.No
Requirement
Answer
1
Current Ratio
1.48
2
Working Capital
$100000
3
Acid Test Ratio
1.33
4
Receivables Turnover
9.41
5
Inventory Turnover
4.21
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