Current ratio and working capital. (LO 3)

Calculate the current ratio and the amount of working capital for Mike \& Kat Racing Company for the years given in the following comparative balance sheets. Although 2 years will not show a significant trend, what is your opinion of the direction of these ratios?

Transcribed Image Text:

Mike & Kat Racing Company Balance Sheet At December 31, 2008 and 2007 2008 2007 Current assets: Cash $186,000 $192,000 Accounts receivable, net 94,000 85,000 Inventory 185,000 170,500 Prepaid expenses 17,000 14,000 Total current assets 482,000 461,500 Equipment, net 215,000 195,000 Total assets $697,000 $656,500 Total current liabilities $267,000 $269,000 Long-term liabilities 185,000 190,000 Total liabilities 452,000 459,000 Shareholders' equity 163,750 148,250 Retained earnings 81,250 49,250 Total liabilities and shareholders' equity $697,000 $656,500