The following account balances were taken from the end of fiscal year financial
ID: 2387414 • Letter: T
Question
The following account balances were taken from the end of fiscal year financial statements of Birddog, Inc. for December 31, 2011:Cash in Bank 10,000 Accounts Payable 18,000
Accounts Receivable 20,000 Federal Income Tax Payable 2,200
Merchandise Inventory 17,800 Dividends Payable (due 2-15-06) 4,400
Prepaid Insurance 2,200 Sales Taxes Payable 400
Long-Term Notes Payable (due 2-1-10) 150,000
For questions 35 through 37, write the correct amount or ratio on your answer sheet. Ratios must be rounded to the nearest tenth and expressed as in this example: 2 to 1.
35. What is the amount of working capital?
36. What is the quick ratio?
37. What is the current ratio?
Explanation / Answer
Current Assets: Cash + Accounts Receivable + Inventory + Insurance
$10,000 + $20,000 + $17,800 + $2,200 = $50,000
Quick Assets: Current Assets - Inventory - Insurance
$50,000 - $17,800 -$2,200 = $30,000
Current Liabilities: Accounts Payable + Federal Income Tax Payable + Dividends Payable + Sales Taxes Payable
$18,000 + $2,200 + $4,400 + $400 = $25,000
Working Capital = Current Assets - Current Liabilites
$50,000 - $25,000 = $25,000
Quick Ratio = Quick Assets / Current Liabilites
$30,000 / $25,000 = 1.2 to 1
Current Ratio = Current Assets / Current Liabilites
$50,000 / $25,000 = 2 to 1