Gremel Corporation has provided the following financial data: Current assets:   Cash$241,000 Accounts receivable, net$234,000 Inventory$119,000 Prepaid expenses$45,000 Total current assets$639,000 Current liabilities:   Accounts payable$163,000 Accrued liabilities$87,000 Notes payable, short term$57,000 Total current liabilities$307,000 Required:a. What is the company's working capital?b. What is the company's current ratio?c. What is the company's acid-test (quick) ratio?

What will be an ideal response?


a.

Working capital = Current assets - Current liabilities

= $639,000 - $307,000 = $332,000

 

b.

Current ratio = Current assets ÷ Current liabilities

= $639,000 ÷ $307,000 = 2.08 (rounded)

 

c.

Acid-test (quick) ratio = Quick assets* ÷ Current liabilities

= $475,000 ÷ $307,000 = 1.55 (rounded)

*Quick assets = Cash + Marketable securities + Current receivables

= $241,000 + $0 + $234,000 = $475,000

Business

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