Math Problem Statement

The bond indenture for the 10-year, 8% debenture bonds, dated January 2, 20Y8, required working capital of $200,000, a current ratio of 2.0, and a quick ratio of 1.0 at the end of each calendar year until the bonds mature. At December 31, 20Y9, the three measures were computed as follows:

Current assets:           Cash

$120,000         Temporary investments

150,000         Accounts receivable (net)

240,000         Inventories

190,000         Prepaid expenses

50,000         Intangible assets

30,000         Property, plant, and equipment

540,000           Total current assets (net)     $1,320,000     Current liabilities:           Accounts and short-term notes payable

$440,000         Accrued liabilities

160,000           Total current liabilities     (600,000)     Working capital     $ 720,000   2.

Current ratio

2.2   $1,320,000 ÷ $600,000

Quick ratio

1.5   $660,000 ÷ $440,000

a.  There are errors in the calculation of the three measures of current position analysis. Determine the correct amounts. Round ratios to two decimal places.

Working capital

$fill in the blank 1

Current ratio   fill in the blank 2

Quick ratio   fill in the blank 3

Solution

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Math Problem Analysis

Mathematical Concepts

Financial Analysis
Working Capital Management
Liquidity Ratios

Formulas

Working Capital = Total Current Assets - Total Current Liabilities
Current Ratio = Total Current Assets / Total Current Liabilities
Quick Ratio = Quick Assets / Total Current Liabilities

Theorems

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Suitable Grade Level

Professional