Accounting: What the Numbers Mean 11th Edition by Wayne McManus,Daniel Viele,David Marshall

Exercise 4

Review problem-understanding liquidity measures Assume that the current ratio for Arch Company is 2.0, its acid-test ratio is 1.5, and its working capital is $900,000. Answer each of the following questions independently, always referring to the original information.
a. How much does the firm have in current liabilities?
b. If the only current assets shown on the balance sheet for Arch Company are Cash, Accounts Receivable, and Merchandise Inventory, how much does the firm have in Merchandise Inventory?
c. If the firm collects an account receivable of $300,000, what will its new current ratio and working capital be?
d. If the firm pays an account payable of $300,000, what will its new current ratio and working capital be?
e. If the firm sells inventory that was purchased for $150,000 at a cash price of $180,000, what will its new acid-test ratio be?