Asked by mariam sadat on Jun 01, 2024
Verified
Booker Corporation had the following comparative current assets and current liabilities: Dec. 31,2017 Dec. 31, 2016 Current assets Cash $60,000$30,000 Short-term investments 40,00010,000 Accounts receivable 55,00095,000 Inventory 110,000$90,000 Prepaid expenses 35,000$20,000 Total current assets $300,000$245,000 Current liabilities Accounts payable $140,000$110,000 Salaries payable 40,00030,000 Income tax payable 20,00015,000 Total current liabilities $200,000$155,000\begin{array} { l r r } & \text { Dec. } 31,2017 & \text { Dec. 31, 2016 }\\\text { Current assets } \\\text { Cash } & \$ 60,000 & \$ 30,000 \\\text { Short-term investments } & 40,000 & 10,000 \\\text { Accounts receivable } &55,000 & 95,000 \\\text { Inventory } &110,000 & \$ 90,000 \\\text { Prepaid expenses } & 35,000 & \$ 20,000 \\\quad \text { Total current assets } &\$ 300,000 & \$ 245,000 \\\text { Current liabilities } & \\\text { Accounts payable } & \$ 140,000 & \$ 110,000 \\\text { Salaries payable } & 40,000 & 30,000 \\\text { Income tax payable } & 20,000 & 15,000 \\\quad \text { Total current liabilities } &\$200,000&\$155,000 \\\end{array} Current assets Cash Short-term investments Accounts receivable Inventory Prepaid expenses Total current assets Current liabilities Accounts payable Salaries payable Income tax payable Total current liabilities Dec. 31,2017$60,00040,00055,000110,00035,000$300,000$140,00040,00020,000$200,000 Dec. 31, 2016 $30,00010,00095,000$90,000$20,000$245,000$110,00030,00015,000$155,000 During 2017 credit sales and cost of goods sold were $750000 and $400000 respectively.
Instructions
Compute the following liquidity measures for 2017:
1. Current ratio.
2. Working capital.
3. Acid-test ratio.
4. Accounts receivable turnover.
5. Inventory turnover.
Acid-test Ratio
A stringent indicator of a company's liquidity, calculated by dividing liquid assets by current liabilities, to determine if it can meet short-term obligations.
Working Capital
The difference between a company's current assets and current liabilities, indicating the short-term financial health and operational efficiency.
Inventory Turnover
A ratio showing how many times a company sells and replaces its stock of goods within a certain period.
- Navigate through computing and interpreting a range of financial ratios, including assessments of liquidity, solvency, and profitability.
- Understand the impact of different transactions on financial ratios and company financial health.
Verified Answer
MS
Mohamed SaeedJun 01, 2024
Final Answer :
1. Current ratio
= Current assets ÷ Current liabilities =$300,000÷$200,000=1.5:1\begin{array} { l } = \text { Current assets } \div \text { Current liabilities } \\= \$ 300,000 \div \$ 200,000 = 1.5 : 1\end{array}= Current assets ÷ Current liabilities =$300,000÷$200,000=1.5:1
2.
Working capital =$300,000−$200,000=$100,000\begin{aligned}\text { Working capital } & = \$ 300,000 - \$ 200,000 \\& = \$ 100,000\end{aligned} Working capital =$300,000−$200,000=$100,000
3.
Ac?d-test rat?o = Cash + Short-term investments + Accounts receivable Current liabilities =$60,000+$40,000+$55,000$200,000=.78:1\begin{aligned}\text { Ac?d-test rat?o } & = \frac { \text { Cash } + \text { Short-term investments } + \text { Accounts receivable } } { \text { Current liabilities } } \\& = \frac { \$ 60,000 + \$ 40,000 + \$ 55,000 } { \$ 200,000 } = .78 : 1\end{aligned} Ac?d-test rat?o = Current liabilities Cash + Short-term investments + Accounts receivable =$200,000$60,000+$40,000+$55,000=.78:1
4. Accounts recelvable turnover = Net credit sales Averaqe accounts recervable =$750,000$75,000=10 times \text { 4. } \begin{aligned}\text { Accounts recelvable turnover } & = \frac { \text { Net credit sales } } { \text { Averaqe accounts recervable } } \\& = \frac { \$ 750,000 } { \$ 75,000 } = 10 \text { times }\end{aligned} 4. Accounts recelvable turnover = Averaqe accounts recervable Net credit sales =$75,000$750,000=10 times
b. Inventory turnover = Cost of goods sold Average inventory =$400,000∣$100,000=4 times \text { b. Inventory turnover } \begin{aligned}& = \frac { \text { Cost of goods sold } } { \text { Average inventory } } \\& = \frac { \$ 400,000 \mid } { \$ 100,000 } = 4 \text { times }\end{aligned} b. Inventory turnover = Average inventory Cost of goods sold =$100,000$400,000∣=4 times
= Current assets ÷ Current liabilities =$300,000÷$200,000=1.5:1\begin{array} { l } = \text { Current assets } \div \text { Current liabilities } \\= \$ 300,000 \div \$ 200,000 = 1.5 : 1\end{array}= Current assets ÷ Current liabilities =$300,000÷$200,000=1.5:1
2.
Working capital =$300,000−$200,000=$100,000\begin{aligned}\text { Working capital } & = \$ 300,000 - \$ 200,000 \\& = \$ 100,000\end{aligned} Working capital =$300,000−$200,000=$100,000
3.
Ac?d-test rat?o = Cash + Short-term investments + Accounts receivable Current liabilities =$60,000+$40,000+$55,000$200,000=.78:1\begin{aligned}\text { Ac?d-test rat?o } & = \frac { \text { Cash } + \text { Short-term investments } + \text { Accounts receivable } } { \text { Current liabilities } } \\& = \frac { \$ 60,000 + \$ 40,000 + \$ 55,000 } { \$ 200,000 } = .78 : 1\end{aligned} Ac?d-test rat?o = Current liabilities Cash + Short-term investments + Accounts receivable =$200,000$60,000+$40,000+$55,000=.78:1
4. Accounts recelvable turnover = Net credit sales Averaqe accounts recervable =$750,000$75,000=10 times \text { 4. } \begin{aligned}\text { Accounts recelvable turnover } & = \frac { \text { Net credit sales } } { \text { Averaqe accounts recervable } } \\& = \frac { \$ 750,000 } { \$ 75,000 } = 10 \text { times }\end{aligned} 4. Accounts recelvable turnover = Averaqe accounts recervable Net credit sales =$75,000$750,000=10 times
b. Inventory turnover = Cost of goods sold Average inventory =$400,000∣$100,000=4 times \text { b. Inventory turnover } \begin{aligned}& = \frac { \text { Cost of goods sold } } { \text { Average inventory } } \\& = \frac { \$ 400,000 \mid } { \$ 100,000 } = 4 \text { times }\end{aligned} b. Inventory turnover = Average inventory Cost of goods sold =$100,000$400,000∣=4 times
Learning Objectives
- Navigate through computing and interpreting a range of financial ratios, including assessments of liquidity, solvency, and profitability.
- Understand the impact of different transactions on financial ratios and company financial health.
Related questions
The Income Statement for Pointe Company for the Year Ended ...
The Following Ratios Have Been Computed for Mason Company for ...
Selected Data for Irma's Store Appear Below Instructions Compute the ...
Flite Corporation Has Issued Common Stock Only InstructionsCompute the ...
For Each of the Ratios Listed Below Indicate by the ...