Exercise 10-18 Suppose the following financial data were reported by 3M Company
ID: 2571241 • Letter: E
Question
Exercise 10-18
Suppose the following financial data were reported by 3M Company for 2018 and 2019 (dollars in millions).
3M Company
Balance Sheets (partial)
2019
2018
(a)
Calculate the current ratio and working capital for 3M for 2018 and 2019. (Round current ratio to 2 decimal places, e.g. 1.25 : 1.)
(b)
Suppose that at the end of 2019, 3M management used $150 million cash to pay off $150 million of accounts payable. How would its current ratio and working capital have changed? (Round current ratio to 2 decimal places, e.g. 1.25 : 1.)
3M Company
Balance Sheets (partial)
2019
2018
Current assets Cash and cash equivalents $ 3,000 $1,800 Accounts receivable, net 3,000 3,000 Inventories 2,603 3,000 Other current assets 1,800 1,500 Total current assets $10,403 $9,300 Current liabilities $ 4,890 $5,803Explanation / Answer
Exercise 10-18
a)
Current ratio:
2018
Current assets/Current liabilities = 9300/5803 = 1.60
2019
Current assets/Current liabilities = 10403/4890 = 2.13
Working capital:
2018
Working capital =Current assets - Current liabilities = 9300 - 5803 = 3497
2019
Working capital =Current assets - Current liabilities = 10403 - 4890 = 5513
b)
Current assets = 10403 - 150 = 10253
Current liabilities = 4890 - 150 = 4740
Current ratio = 10253/4740 = 2.16
Working capital =Current assets - Current liabilities = 10253 - 4740 = 5513
Current ratio has increased slightly but there is no change in working capital.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.