Selected Financial Measures for Short-Term Creditors [LO3]

Rightway Products had a current ratio of 2.5 on June 30 of the current year. On that date, the company’s assets were as follows:

Cash . . . . . . . . . . . . . . . . . . . . . $ 80,000 Accounts receivable, net . . . . . . 460,000 Inventory . . . . . . . . . . . . . . . . . . 750,000 Prepaid expenses . . . . . . . . . . . 10,000 Plant and equipment, net . . . . . . 1,900,000 Total assets . . . . . . . . . . . . . . . . $3,200,000 Required:

1. What was the company’s working capital on June 30?

2. What was the company’s acid-test ratio on June 30?

3. The company paid an account payable of $100,000 immediately after June 30.

a. What effect did this transaction have on working capital? Show computations.

b. What effect did this transaction have on the current ratio? Show computations.