The following data were taken from the balance sheet of Tiger Shapes Company: De

Question

The following data were taken from the balance sheet of Tiger Shapes Company:

Determine for each year (1) the working capital, (2) the current ratio, and (3) the quick ratio.

20Y9 20Y8 Working capital $ $ Current ratio $ $ Quick ratio $ $
Dec. 31, 20Y9 Dec. 31, 20Y8 Cash Temporary investments Accounts and notes receivable (net) Inventories Prepaid expenses 100,000 150,000 400,000 525,000 25,000 1,200,000 S 425,000 75,000 S 500,000 $ 80,000 40,000 360,000 380,000 20,000 $880,000 340,000 60,000 400,000 Total current assets Accounts and notes payable (short-term) Accrued liabilities Total current liabilities

Explanation / Answer

Working capital = Current assets - Current liabilities

For the year 20Y9:

Working Capital = 1200000 - 500000 = 700000

For the year 20Y8:

Working capital = 880000 - 400000 = 480000

Current ratio = Current assets / Current liabilities

For the year 20Y9 :

Current ratio = 1200000 / 500000 = 2.4 times

For the year 20Y8 :

Current ratio = 880000 / 400000 = 2.2 times

Quick ratio = Quick assets / Current liabilities

Quick assets = Current assets - Inventory - Prepaid expenses

For the year 20Y9:

Quick ratio = 1200000 - 525000 - 25000 / 500000

= 1.3 times

For the year 20Y8:

Quick ratio = 880000 - 380000 - 20000 / 400000

= 1.2 times.

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