Answer each of the questions in the following unrelated situations. (a) The curr

Question

Answer each of the questions in the following unrelated situations. (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 $544,000, what is the amount of current liabilities? Current Liabilities 90666.67 (b) A company had an average inventory last year of $200,000 and its inventory turnover was 6. 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 O decimal places, e.g. 125.) Average Inventory $ 4166.67 (c) A company has current assets of $99,000 (of which $39,000 is inventory and prepaid items) and current liabilities of $39,000. What is the current ratio? What is the acid-test ratio? If the company borrows $17,000 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.) Current Ratio Acid Test Ratio New Current Ratio New Acid Test Ratio (d) A company has current assets of $654,000 and current liabilities of $240,000. The board of directors declares a cash dividend of $183,000. 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.) Current ratio after the declaration but before payment Current ratio after the payment of the dividend

Explanation / Answer

Answer a Current Liabilities = Inventories and prepaid items / Current ratio = $544000 / 6 = $90,667 Answer b Cost of good sold of last year = Average inventory * Inventory turnover ratio = $200000 * 6 = $12,00,000 Average Inventory of this year = Cost of goods sold this year / Inventory turnover ratio of this year = $12,00,000 / 8 = $150000 Answer c Current ratio = Current assets / Current liabilities = $99000 / $39000 = 2.54 Acid test ratio = (Current assets - Inventory & prepaid items) / Current Liabilities = ($99000 - $39000)/$39000 = 1.54 New Current Ratio = New Current assets / New current liabilities = ($99000+$17000)/($39000+$17000) = 2.07 New Acid test ratio = (New Current assets - Inventory & prepaid items) / New Current Liabilities = ($116000 - $39000)/$56000 = 1.375 Answer d Current ratio after the declaration but before payment = Current assets / Current liabilities = $654000 / ($240000+$183000) = 1.55 Current ratio after the payment of dividend = Current assets / Current liabilities = ($654000-$183000) / $240000 = 1.96

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.