Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 27

Effect of transactions on working capital and current ratio Evans, Inc., had

current liabilities at November 30 of $137,400. The firm’s current ratio at that date was 1.8.

Required:

a.Calculate the firm’s current assets and working capital at November 30.

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b. Assume that management paid $30,600 of accounts payable on November 29. Calculate the current ratio and working capital at November 30 as if the November 29 payment had not been made. Round your current ratio answer to two decimal places.

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c. Explain the changes, if any, to working capital and the current ratio that would be caused by the November 29 payment.