Selected Financial Measures for Short-Term Creditors
Derivative Products had a current ratio of 2.0 on October 31 of the current year. On that date, the company's assets were as follows:
|
Cash
|
$80,000
|
|
Accounts receivable, net
|
450,000
|
|
Inventory
|
800,000
|
|
Prepaid expenses
|
10,000
|
|
Plant and equipment, net
|
2,000,000
|
|
Total assets
|
$3,340,000
|
Required:
1. What was the company's working capital on October 31?
2. What was the company's acid-test ratio on October 31?
3. The company purchased inventory for $60,000 immediately after October 31.
a. What effect did this transaction have on working capital? Show computations.
b. What effect did this transaction have on the acid-test ratio? Show computations.