Simply Spa Collections had a current ratio of 2 5 to
Simply Spa Collections had a current ratio of 2.5 to 1 on December 31 of the current year. On that date, the company’s assets were as follows:
Cash ................. $ 100,000
Accounts receivable (net) ......... 620,000
Inventory ............... 955,000
Prepaid expenses ............ 24,000
Equipment (net) ............. 2,340,000
Total assets .............. $4,039,000

Required
a. What were the company’s current liabilities on December 31?
b. What was the company’s acid-test ratio on December 31?
c. The company paid an account payable of $165,000 immediately after December 31.
What effect did this have on the current ratio? Show computations.

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