Answer:
a. The working capital is $65,600
b. The quick ratio is 68%
The Working capital is important to financial management of a business, becuase it indicates the ability to pay its debts ot short-term liabilities
The quick ratio is a form of liquidity ratio, and this ratio is important to financial analysts becuase it measures the firms ability in meeting its short-term obligations and responsibilities with its most liquid assets.
if the company reported $250,000 worth of contingent liabilities in the notes to the statements the computations would not be different becuase there would be no effect on the balance sheet, as they are reported as notes to financial statements and the effect is found only when the contingent liabilities turns to a liability
Explanation:
a. In order to calculate working capital we would have to use the following formula:
Net working capital = Total current assets - Total current liabilities
Total current assets = Total assets - Total non current assets
= $530,000 - $362,000
= $168,000
Total current liabilities = Accounts payable + Income taxes payable + Wages payable + Property taxes payable + Notes payable (Due in 6months) + Interest payable + Rent revenue collected in advance + Liability for withholding taxes
Total current liabilities= $56,000 + $14,000 + $7,000 + $3,000 + $12,000 + $400 + $7,000 + $3,000
= $102,400
Therefore, working capital = $168,000 - $102,400
= $65,600
b) In order to calculate the quick ratio we would have to use the following formula:
Quick ratio = Total quick assets / Total current liabilities
= $70,000 / $102,400
= 0.68
The Working capital is important to financial management of a business, becuase it indicates the ability to pay its debts ot short-term liabilities
The quick ratio is a form of liquidity ratio, and this ratio is important to financial analysts becuase it measures the firms ability in meeting its short-term obligations and responsibilities with its most liquid assets.
if the company reported $250,000 worth of contingent liabilities in the notes to the statements the computations would not be different becuase there would be no effect on the balance sheet, as they are reported as notes to financial statements and the effect is found only when the contingent liabilities turns to a liability
