On December 31, Year 1, Houston Company's total current assets were $560,000 and its total current liabilities were $420,000. On January 1, Year 2, Houston issued a long-term note to a bank for $30,000 cash.Required:(a) Compute Houston's working capital (1) before and (2) after issuing the note payable.(b) Compute Houston's current ratio (1) before and (2) after issuing the note payable. Round your answer to two decimal places.
What will be an ideal response?
| a) | (1) $140,000 |
(2) $170,000
Working capital after issuing note payable = $590,000 ? $420,000 = $170,000
| b) | (1) 1.33 |
(2) 1.40
Current ratio after issuing note payable = $590,000 ÷ $420,000 = 1.40
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