How is that correct ? How is that correct ? Problem #3 Following are Rover Corpo
ID: 2577477 • Letter: H
Question
How is that correct ?
How is that correct ?
Problem #3 Following are Rover Corporation's balance sheet accounts at 12/31/2015 Cash Retained earnings Inventory Equpment ST investments Accumulated depreciation Capital stock $15,000 13,000 6,000 30,000 14,000 5.000 30,000 Accounts payable Notes pyble due 9/30/2011 Accounts receivable Notes pyble due 6/30/2013 LT investments Prepaid insurance Land $20,000 18,000 22,000 50,000 13,000 2,000 34.000 1. What was Rover Corporation's current ratio at 12/31/2015? $59,000 current assets/$38,000 current liabilities- 1.55 2. What was Rover Corporation's working capital at 12/31/2015? $59,000 current assets $38,000 current liabilities $21,000 of working capital 3. If Rover uses $5,000 of cash to pay off some of the short-term debt, what effect will that have on the company's current ratio? Current ratio will increase: $54,000 current assets/S33/000 current liabilities 1.64Explanation / Answer
1. Current assets:
=Cash + inventory+ ST investment + account receivable+ prepaid insurance
=$15,000+$6,000+$14,000+$22,000+$2,000
=$59,000
Current liabilities:
=Account payable + notes payable(9/30/2011)
=$20,000+$18,000
=$38,000
Current ratio=current assets/current liabilities
=$59,000/$38,000
=1.55
2. Working capital=59,000-38,000
=$21,000
3.
New Curre by assets=$59,000-$5,000
=$54,000
New current liabilities=$38,000-$5,000
=$33,000
New current ratio=$54,000/$33,000=$1.64
So current ratio increases from 1.55 to 1.64