Final answer:
The working capital of Tommy's Subs Company is calculated by subtracting current liabilities from current assets. With a current ratio of 2.5 and current assets totaling $195,000, the current liabilities amount to $78,000, leading to a working capital of $117,000. The correct answer is option A $117,000.
Step-by-step explanation:
To find the amount of working capital for Tommy's Subs Company, given a current ratio of 2.5 and current assets of $195,000, we can use the formula that defines the current ratio:
The current ratio is calculated by dividing current assets by current liabilities. The formula is as follows:
Current Ratio = Current Assets / Current Liabilities
Since we are given the current ratio (2.5) and the current assets ($195,000), we can rearrange the formula to solve for current liabilities:
Current Liabilities = Current Assets / Current Ratio
Substituting the given values:
Current Liabilities = $195,000 / 2.5 = $78,000
Working capital is calculated as the difference between current assets and current liabilities:
Working Capital = Current Assets - Current Liabilities
Working Capital = $195,000 - $78,000 = $117,000
Therefore, the amount of working capital is $117,000, which corresponds to option (a).