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

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

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