(a) The current ratio of a company is 6:1 and its acid-test ratio is 1:1. If the
ID: 2504039 • Letter: #
Question
(a) The current ratio of a company is 6:1 and its acid-test ratio is 1:1. If the inventories and prepaid items amount to $412,200, what is the amount of current liabilities?
(b) A company had an average inventory last year of $267,000 and its inventory turnover was 5. If sales volume and unit cost remain the same this year as last and inventory turnover is 8 this year, what will average inventory have to be during the current year? (Round answer to 0 decimal places, e.g. 125.)
(c) A company has current assets of $85,610 (of which $36,850 is inventory and prepaid items) and current liabilities of $36,850. What is the current ratio? What is the acid-test ratio? If the company borrows $13,080 cash from a bank on a 120-day loan, what will its current ratio be? What will the acid-test ratio be? (Round answers to 2 decimal places, e.g. 2.50.)
(d) A company has current assets of $611,400 and current liabilities of $225,500. The board of directors declares a cash dividend of $177,400. What is the current ratio after the declaration but before payment? What is the current ratio after the payment of the dividend? (Round answers to 2 decimal places, e.g. 2.50.)
Explanation / Answer
Acid test ratio=Current assets-Inventories and prepaid items/Current liabilities
Or1*Current liabilities=6*Current liabilities=412200
Or Current liabilities=412200/5
=$82440
Average inventory should be=267000*8/5
=$427200
Current ratio=85610/36850
=2.32 times
Acid test ratio=85610-36850/36850
=1.32 times
Current ratio=85610+13080/36850+13080
=1.98 times
Acid test ratio=61840/49930
=1.24 times
Current ratio before=611400/225500+177400
=1.52 times
As dividend declared becomes a liability
Current ratio after=611400-177400/225500
=1.92times
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