Dane Corporation had the following comparative current assets and current liabil
ID: 2452939 • 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
1) Current ratio =current asset /current liabilities
= 310,000 / 210,000
= 1.48 :1
2)Working capital =current asset -current liabilities
= 310,000 - 210,000
= $ 100,000
3)Acid test ratio = (current asset -Inventory -prepaid expense) /current liabilities
= (310,000 - 100,000 -30,000 ) / 210,000
= 180,000/210,000
= .86:1
4)Receivable turnover = net credt sales /Average receivable
= 800,000 /[ (100,000 +70,000)/2]
= 800,000 / [170,000 /2]
= 800,000 / 85000
= 9.41
5)Inventory turnover = COGS/ average inventory
= 400,000 / [(100,000+ 90000) /2]
= 400,000 / [190000/2]
= 400,000/ 95000
= 4.21
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