Derivative Products had a current ratio of 2.0 on October 31 of the current year. On that date, the company's assets were as follows:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 80,000
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450,000
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800,000
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,340,000
Required:
1. What was the company's working capital on October 31?
2. What was the company's acid-test ratio on October 31?
3. The company purchased inventory for $60,000 immediately after October 31.
a. What effect did this transaction have on working capital? Show computations.
b. What effect did this transaction have on the acid-test ratio? Show computations.