Question

Data pertaining to the current position of Forte Company follow: Cash $412,500 Marketable securities 187,500 Accounts and notes receivable (net) 300,000 Inventories 700,000 Prepaid expenses 50,000 Accounts payable 200,000 Notes payable (short-term) 250,000 Accrued expenses 300,000Compute (A) the working capital, (B) the current ratio, and (C) the quick ratio . Round ratios to one decimal place.

Answer 1

a.$900,000

b.2.2

c.1.3

Step-by-step explanation:

a. The working capital is determined using the following mentioned formula:

working capital=current assets-current liabilities

In the given question:

Current assets=Cash+Marketable securities+Accounts and notes receivable+Inventories+Prepaid expenses

current assets=$412,500+$187,500+$300,000+$700,000+$50,000

=$1,650,000

Current liabilities=Accounts payable+Notes payable (short-term)+Accrued expenses

Current liabilities=$200,000+$250,000+$300,000

=$750,000

Working capital=$1,650,000-$750,000=$900,000

b. The current ratio is determined using the following mentioned formula:

Current ratio=current assets/current liabilities

Current ratio=$1,650,000/$750,000=2.2

c.The quick ratio is determined using the following mentioned formula:

Quick ratio=current assets-inventories/current liabilities

Quick ratio=current assets-inventories/current liabilities

Quick ratio=$1,650,000-$700,000/$750,000=1.3