Dec. 31, 2014 Dec. 31, 2013
Cash $ 700,000 $ 600,000
Marketable securities 800,000 620,000
Accounts and notes receivable (net) 920,000 780,000
Inventories 600,000 500,000
Prepaid expenses 500,000 500,000
Total current assets $ 3,520,000 $ 3,000,000
Accounts and notes payable (short-term) $ 800,000 $ 750,000
Accrued liabilities 300,000 250,000
Total current liabilities $1,100,000 $1,000,000
a. Determine for each year (1) the working capital, (2) the current ratio, and (3) the quick ratio. Round ratios to one decimal place.
b. What conclusions can be drawn from these data as to the company’s ability to meet its currently maturing debts?
Answer:
a. (1) Working Capital = Current Assets – Current Liabilities
2014: $2,420,000 = $3,520,000 – $1,100,000
2013: $2,000,000 = $3,000,000 – $1,000,000
(2) Current Ratio = Current Assets
Current Liabilities
2014: $3,520,000
$1,100,000 = 3.2 2013: $3,000,000
$1,000,000 = 3.0
(3) Quick Ratio = Quick Assets
Current Liabilities
2014: $2,420,000
$1,100,000 = 2.2 2013: $2,000,000
$1,000,000 = 2.0
b. The liquidity of Mossberg has improved from the preceding year to the current year. The working capital, current ratio, and quick ratio have all increased. Most of these changes are the result of an increase in current assets relative to current liabilities.