On December 31, Year 1, Allen Company's total current assets were $600,000 and its total current liabilities were $380,000. On January 1, Year 2, Allen paid $20,000 on accounts payable.Required:(a) Compute Allen's working capital before and after paying the account payable.(b) Compute Allen's current ratio before and after paying the account payable. Round your answer to two decimal places.
What will be an ideal response?
(a) Working capital before paying the account payable = $600,000 - $380,000 = $220,000
Working capital after paying the account payable = $580,000 - $360,000 = $220,000
(b) Current ratio before paying the account payable = $600,000 ÷ $380,000 = 1.58
Current ratio after paying the account payable = $580,000 ÷ $360,000 = 1.61
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