Answer:
Forte Company
Computation of :
a. The working capital = Current Assets minus Current Liabilities
= $1,650,000 - $750,000
= $900,000
b. The current ratio = Current assets/Current liabilities
= $1650,000/$750,000
= 2.2 : 1
c. The quick ratio = (Current asset minus Inventory)/Current liabilities
= ($1,650,000 - 750,000)/$750,000
= $900,000/$750,000
= 1.2 : 1
Explanation:
a) Data and Calculations:
Cash $412,500
Marketable securities 187,500
Accounts and notes receivable (net) 300,000
Inventories 700,000
Prepaid expenses 50,000
Total Current Assets $1,650,000
Accounts payable 200,000
Notes payable (short-term) 250,000
Accrued expenses 300,000
Total Current Liabilities $750,000
b) Forte Company's working capital is the difference between the current assets and the current liabilities. In this case, it is very positive with a huge sum of $900,000.
c ) Forte Company's current ratio is an expression of the relationship between current assets and current liabilities. It shows how much of current liabilities that current assets can cover. The ability of the management of Forte Company to settle its current obligations from the current assets is worked out under this ratio.
d) Forte has a quick ratio of more than 1 : 1. It is similar to the current ratio but with the omission of the Inventory and Prepaid Expenses which are regarded as always taking longer to sell and recover respectively.
