Exercise 14-12 Selected Financial Measures for Assessing Liquidity [LO14-2]

Norsk Optronics, ALS, of Bergen, Norway, had a current ratio of 2.5 on June 30 of the current year. On that date, the companys assets were:

Cash	$	90,000
Accounts receivable, net		260,000
Inventory		490,000
Prepaid expenses		10,000
Plant and equipment, net		800,000
Total assets	$	1,650,000

Required:

1. What was the companys working capital on June 30?

2. What was the companys acid-test ratio on June 30? (Round your answer to 2 decimal places.)

3. The company paid an account payable of $40,000 immediately after June 30.

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

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