Edit View History Bookmarks Tools Window Help Homework 12 Help Save& Exilt Submi

ID: 2437952 • Letter: E

Question

Edit View History Bookmarks Tools Window Help Homework 12 Help Save& Exilt Submit omework #12 6 Exercise 15-12 Selected Financial Measures for Assessing Liquidity [LO15-2) Norsk Optronics, ALS, of Bergen, Norway, had a current ratio of 2 on June 30 of the current year On that date, the company's assets 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.) 3. The company paid an account payable of $46,000 immediotely ater June 30. a. What effect did this transaction have on working capita? b. What effiect did this transaction have on the current rato? (Round your intermediate calculations to 1 decimal place.) 1. Working ata MacBook Pro 5 8

Explanation / Answer

Working Capital

$602500

Acid Test ratio

0.77

Effect on Working Capital

No Effect

Effect on Current Ratio

Increase to 2.11 from 2

(1) Working Capital :-

Current Assets – Current Liabilities

Current Asset as on June 30 = Cash + Account Receivable + Inventory + Prepaid Exp

= 65000 + 390000 + 740000 + 10000 = $1205000

Current Liabilities = Current Assets/Current Ratio

= 1205000/2 = 602500

So Working Capital = 1205000 – 602500 = $602500

(2) Acid Test Ratio:-

Current Asset except Inventory / Current Liabilities

Current Asset except Inventory = Cash + Account Receivable + Prepaid Exp

= 65000 + 390000 + 10000 = 465000

Current Liabilites = 602500

Acid Test ratio = 465000/602500 = 0.77

(3a) Effect on Working Capital :-

Working Capital = Current Asset – Current Liabilities

After 30 June, The company paid $46000 A/c Payable

There is no effect on Working capital because Current Assets & Current Liab will decrease with the same amount i.e $46000

From Current Asset side, Cash decrease by $46000

From Current Liab side, A/c Payable decrease by $46000

Current Asset after 30 June = 1205000 – 60000 = $1145000

Current Liab after 30 June = 602500 – 60000 = $542500

Working Capital = 1145000 – 542500 = $602500

Hence there is no effect on Working Capital

(3b) Effect on Current Ratio :-

Current Asset after 30 June = 1205000 – 60000 = $1145000

Current Liab after 30 June = 602500 – 60000 = $542500

Current Ratio = Current Asset / Current Liab

= 1145000/542500 = 2.11

Current Ration is increase to 2.11 from 2