Current Ratio and Working Capital
the Balance Sheet of Red

question 89

Essay

Current ratio and working capital
The balance sheet of Red Missile Company contained the following items, among others:
$$\begin{array} { | l | r | } \hline \text { Cash } & \$ 180,000 \\\hline \text { Accounts Receivable } & \$ 84,000 \\\hline \text { Inventory } & \$ 124,000 \\\hline \text { Store Equipment (net) } & \$ 236,000 \\\hline \text { Other Assets } & \$ 67,500 \\\hline \text { Mortgage Payable (due in 3 years) } & \$ 169,000 \\\hline \text { Note Payable (due in 10 days) } & \$ 163,000 \\\hline \text { Accounts Payable } & \$ 96,000 \\\hline \text { Capital Stock } & \$ 67,500 \\\hline \text { Retained Earnings } & \$ 197,000 \\\hline\end{array}$$
(a) From the above information compute:
(1) Current assets: $_______
(2) Current liabilities: $______
(3) The current ratio: ______ to 1
(4) Working capital: $______
(b) Assume that Red Missile Company pays the note payable of $163,000, thus reducing cash to $17,000. Compute the following after the completion of this transaction:
(1) The current ratio: ______ to 1
(2) Working capital: $______