Excerpts from Candle Corporation\'s most recent balance sheet (in thousands of d
ID: 2600150 • Letter: E
Question
Excerpts from Candle Corporation's most recent balance sheet (in thousands of dollars) appear below Year 2 Year 1 Current assets: Cash Accounts receivable Inventory Prepaid expenses S 340 $ 200 340 350 220 220 68 78 Total current assets $ 968 S 848 Current liabilities: Accounts payable Accrued liabilities Notes payable, short term s 270 s 270 180 98 78 68 Total current liabilities $ 528 $436 Sales on account during the year totaled $1,520 thousand Cost of goods sold was $930 thousand the following working capital for Year 2(Enter your answer in thousands of dollars, Le., 100,000 should be entered as 100.) b. Compute the following current ratio for Year 2 (Round your answer to 2 decimal places.) c. Compute the following acid-test ratio for Year 2Explanation / Answer
Avg Receivables= Beginning receivables + Ending Receivables /2
=$350+$340/2
=$690/2
=$345
Avg Inventory= Beginning Inventory + Ending Inventory /2
=$220+$220/2
=$440/2
=$22
a.Working Capital= Current Assets- Current Liabilities
=$968-$528
=$440
b.Current Ratio= Current Assets/ Current Liabilities
=$968/$528
=1.83
c.Acid test ratio= [Current assets-( Inventory- Pre paid expenses)]/Current liabilities
=[$968-($220-$68)/$528
=$680/$528
=1.29
d.Accounts receivable turnover ratio = Credit Sales/(Avg Receivables)
=$1,520/$345
=4.41
e.Average Collection period=365/ Accounts receivable turnover ratio=365/4.41=82.85 days
f.Inventory Turnover= Cost Goods Sold/Avg Inventory=$930/$220=4.23
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