View site information Assume that the current ratio for Arch Company is 3.5, its

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View site information Assume that the current ratio for Arch Company is 3.5, its acid-test ratio is 1.5, and its working capital is $390,000. Answer each of the following questions independently, always referring to the original information. Required a. How much does the firm have in current liabilities? (Do not round intermediate calculations.) 195,000 abilitie b. If the only current assets shown on the balance sheet for Arch Company are Cash, Accounts Receivable, and Merchandise Inventory, how much does the firm have in Merchandise Inventory? (Do not round intermediate calculations.) Merchandise nven $ 292,500 c. If the firm collects an account receivable of $106,000, what will its new current ratio and working capital be? (Round "Current ratio" to 1 decimal place.) 3.0 Current ratio Working 390,000 d. If the firm pays an account payable of $52,000, what will its new current ratio and working capital be? (Do not round intermediate calculations. Round "Current ratio" to 1 decimal place.) 3.7 Current ratio Working 390,000 e. If the firm sells inventory that was purchased for $50,000 at a cash price of $64,000, what will its new acid-test ratio be? (Do not round intermediate calculations. Round your answer to 1 decimal place.) 2.3

Explanation / Answer

a Current Assets / Current Liability   = 3.5 Current Assets - Current Liability   = 390000 So Current Assets    = 3.5* Current Liability CA = 3.5 CL CA = Current Asset CL = Current Liability So CA - CL = 390000 Here CA = 3.5 CL equation we can apply 3.5 CL - CL = 390000 2.5 CL = 390000 CL = 390000/2.5 = 156000 CA - 156000 = 390000 CA = 390000 + 156000 = 546000 b Merchendise Inventory Acid Test Ratio = 1.5 CA - Inventory / CL 546000 - Invetory / 156000 =1.5 546000 - Invetory =1.5 * 156000 Inventory = 546000 -234000 = 312000 c CA / CL = Current Ratio New CA = 546000-106000 +106000 = 440000 546000 / 156000 = 3.5 Accounts receivables will decrease and Cash will increase Working Capital Will be Same d CA / CL = Current Ratio New CL = 156000-52000 = 104000 New CA = 546000-52000 = 494000 494000 / 104000 = 4.75 Working Capital Will be Same e CA - Inventory / CL = Acid Test Ratio New CA = 546000-50000 + 64000 = 560000 Inventory = 312000 - 50000 = 262000 560000-262000 / 156000 = 1.910

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