Question

Calculate working capital based on the following:

Current Ratio: 2.1
Inventory: $2X0,000
Quick Ratio: 1.7

X= 0

Answer 1

Working capital $550,000

Step-by-step explanation:

Given that

The Current ratio is 2:1

Inventory is $200,000

And, the quick ratio is 1:7

Now as we know that

Current ratio = Current assets ÷ current liabilities

2.1 = Current assets ÷ current liabilities

2.1 current liabilities = current assets

And, the quick ratio is

Quick ratio ÷ quick assets ÷ current liabilities

1.7 = (Current assets - inventory) ÷ current liabilities

1.7 = (Current assets - $200,000) ÷ current liabilities

1.7 current liabilities = current assets - $200,000

Now put the value of current liabilities

1.7 current liabilities = 2.1 current liabilities - $200,000

$200,000 = 2.1 current liabilities - 1.7 current liabilities

$200,000 = 0.4 current liabilities

So, current liabilities

= $200,000 ÷ 0.4

= $500,000

Now the current assets = 2.1 × $500,000

= $1,050,000

Now the working capital is

= Current assets - current liabilities

= $1,050,000 - $500,000

= $550,000