The following amounts were reported on the December 31, 2019, balance sheet:
Cash $ 16,000
Accounts receivable 44,000
Common stock 80,000
Wages payable 10,000
Retained earnings 160,000
Land 40,000
Accounts payable 30,000
Bonds payable 240,000
Merchandise inventory 60,000
Buildings and equipment, net of accumulated depreciation 360,000
Required:
a. Calculate working capital at December 31, 2019.
b. Calculate the current ratio at December 31, 2019.
c. Calculate the acid-test ratio at December 31, 2019. (Round your answer to 1 decimal place.)

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andromache andromache · Answer 1 · 2019-12-21T12:55:11+01:00

Answer:

a. $50,000

b. 2.25 times

c. 0.75 times

Explanation:

a. The formula to compute the working capital is shown below:

Working capital = Current assets - current liabilities

where,

Current assets = Cash + accounts receivable + merchandise inventory

= $16,000 + $44,000 + $60,000

= $90,000

And, the current liabilities would be

= Wages payable + accounts payable

= $10,000 + $30,000

= $40,000

Now put these values to the above formula

So, the value would be equal to

= $90,000 - $40,000

= $50,000

b. Current ratio = Total Current assets ÷ total current liabilities

= $90,000 ÷ $40,000

= 2.25 times

c. Acid-test ratio = Total Current assets - merchandise inventory ÷ total current liabilities

= $90,000 - $60,000 ÷ $40,000

= 0.75 times