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.