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Booker Corporation had the following comparative current assets and current liabilities: Dec. 31, 2017 Dec. 31, 2016 Current assets Cash $60,000 $30,000 Short-term investments 40,000 10,000 Accounts receivable 55,000 95,000 Inventory 110,000 90,000 Prepaid expenses 35,000 20,000 Total current assets $300,000 $245,000 Current liabilities Accounts payable $140,000 $110,000 Salaries payable 40,000 30,000 Income tax payable 20,000 15,000 Total current liabilities $200,000 $155,000 During 2017, credit sales and cost of goods sold were $750,000 and $400,000, respectively. Compute the following liquidity measures for 2017: (Round current and acid-test ratios to 2 decimal places, e.g. 52.71.) 1. Current ratio :1 2. Working capital $ 3. Acid-test ratio :1 4. Accounts receivable turnover times 5. Inventory turnover times

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Answer:

Liquidity measures for the year 2017 are as under:

Current Ratio = 1.5  

Working Capital = $100,000  

Acid Test Ratio = 0.95  

Accounts Receivables Turnover = 10 times  

Inventory turn over = 4 times  

Explanation:

Current Ratio

        Current Ratio = Current Assets ÷ Current Liabilities

                          Dec 31, 2017                                     Dec 31, 2016

                      $300,000 ÷ $200,000                   $245,000  ÷ $155,000  

Current Ratio                 1.5                                                  1.6  

Working Capital  

       Working Capital = Current Assets – Current Liabilities

                          Dec 31, 2017                                     Dec 31, 2016

                      $300,000 – $200,000                   $245,000  – $155,000

Working Capital         $100,000                                     $90,000  

 

Acid Test Ratio

        Acid Test Ratio = (Current Assets – Inventory)  ÷ Current Liabilities

                          Dec 31, 2017                                     Dec 31, 2016

($300,000 – $110,000) ÷ $200,000     ($245,000 – $90,000) ÷ $155,000

Acid Test Ratio           0.95                                                1.00  

 

Accounts Receivables Turnover Times  

Accounts Receivables Turnover = Credit Sales ÷ Average Accounts Receivables

Average Accounts Receivables = (Opening Accounts Receivables + Closing Accounts Receivables) ÷ 2

Average Accounts Receivables = ($55,000 + $95,000) ÷ 2 = $75,000

Accounts Receivables Turnover = $750,000  ÷ $75,000 = 10 Times

Inventory Turnover Times

Inventory Turnover = Cost of Goods Sold ÷ Average Inventory

Average Inventory = (Opening Inventory + Closing Inventory)  ÷ 2

Average Inventory =  ($110,000 + $90,000)  ÷ 2 = $100,000

Inventory Turnover =  $400,000  ÷ $100,000 = 4 Times

 

Liquidity can be defined as the company’s capability of raising the cash in the required times.

  • Current ratio has been the liquidity ratio that has been the liquidity ability of the year. Current ratio can be given by:

Current ratio = [tex]\rm \dfrac{current\;assests}{current\;liabilities}[/tex]

Current ratio for Dec. 31, 2017 = [tex]\rm \dfrac{300,000}{200,000}[/tex]

Current ratio for Dec. 31, 2017 = 1.5

Current ratio for Dec. 31, 2016 = [tex]\rm \dfrac{245,000}{155,000}[/tex]

Current ratio for Dec. 31, 2016 = 1.6

  • Working capital can be given by:

Working Capital = Current Assets – Current Liabilities

Working capital for Dec. 31, 2017 = $300,000 – $200,000                  

Working capital for Dec. 31, 2017 = $100,000

Working capital for Dec. 31, 2016 = $245,000  – $155,000

Working capital for Dec. 31, 2016 = $90,000  

  • Acid-test ratio can be given as:

Acid-test ratio = [tex]\rm \dfrac{Current\;Assets\; -\;Inventory}{Current\;Liabilities}[/tex]

Acid-test ratio for Dec. 31, 2017 = [tex]\rm \dfrac{(300,000\;-\; 110,000}{200,000}[/tex]

Acid-test ratio for Dec. 31, 2017 = 0.95

Acid-test ratio for Dec. 31, 2016 = [tex]\rm \dfrac{(245,000\;-\; 90,000}{155,000}[/tex]

Acid-test ratio for Dec. 31, 2016 = 1.00

  • Accounts Receivables Turnover can be given by:

Accounts Receivables Turnover = [tex]\rm \dfrac{Credit\;sales}{Average\;accounts\;receivable}[/tex]

Accounts Receivables Turnover for Dec. 31, 2017 = [tex]\rm \dfrac{750,000}{75,000}[/tex]

Accounts Receivables Turnover for Dec. 31, 2017 = 10 times

  • Inventory turnover times can be given by:

Inventory turnover times = [tex]\rm \dfrac{cost\;sold}{average\;inventory}[/tex]

Inventory turnover times = [tex]\rm \dfrac{400,000}{100,000}[/tex]

Inventory turnover times = 4 times.

For more information about liquidation, refer to the link:

https://brainly.com/question/1514252

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