Joe Fellows is attempting to categorize several items from his company’s financi
ID: 2780583 • Letter: J
Question
Joe Fellows is attempting to categorize several items from his company’s financial statements so he can determine his working capital. Joe notices the following categories of accounts and amounts: cash, $3,500; accounts payable, $10,200; accounts receivable, $15,000; sales taxes due the city of Phoenix, $750; sales taxes due the Arizona Department of Revenue, $3,450; inventory, $17,500; wages payable, $5,350; taxes payable (federal), $2,570; money market fund, $12,300; and computer, $3,400.
a. List accounts classified as current assets and as current liabilities.
b. Determine the amount of gross working capital.
c. Determine the amount of net working capital.
d. What is Joe’s current ratio?
Explanation / Answer
a. List accounts classified as current assets and as current liabilities.
Current Assets
Amount
Current Liabilities
Amount
Cash
$ 3,500
Accounts Payable
$ 10,200
Accounts Receivable
$ 15,000
Sales tax-Phoenix
$ 750
Inventory
$ 17,500
Sales tax AZ Dept
$ 3,450
Money Market
$ 12,300
Wage Payable
$ 5,350
Tax Payable(Fed)
$ 2,570
Total
$ 48,300
$ 22,320
b. Determine the amount of gross working capital.
All Current Assets is Gross Working Capital=$48,300
c. Determine the amount of net working capital.
net working capital= Current Assets- Current Liabilities
=$48,300-$22,320
= $ 25,980
d. What is Joe’s current ratio?
current ratio= Current Assets/Current Liabities
=$48,300/$22,320
=2.16
Current Assets
Amount
Current Liabilities
Amount
Cash
$ 3,500
Accounts Payable
$ 10,200
Accounts Receivable
$ 15,000
Sales tax-Phoenix
$ 750
Inventory
$ 17,500
Sales tax AZ Dept
$ 3,450
Money Market
$ 12,300
Wage Payable
$ 5,350
Tax Payable(Fed)
$ 2,570
Total
$ 48,300
$ 22,320
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