Information from Greg Company’s balance sheet follows:
|
Current assets: |
|
|
Cash |
$2,100,000 |
|
Marketable securities |
7,200,000 |
|
Accounts receivable |
50,500,000 |
|
Inventories |
65,000,000 |
|
Prepaid expenses |
1,000,000 |
|
Total current assets |
$125,800,000 |
|
Current liabilities: |
|
|
Notes payable |
$1,400,000 |
|
Accounts payable |
18,000,000 |
|
Accrued expenses |
11,000,000 |
|
Income taxes payable |
600,000 |
|
Payments due within one year on long term debt |
3,000,000 |
|
Total current liabilities |
$34,000,000 |
Required Answer the following multiple choice questions:
a. What is the acid test ratio for Greg Company?
1. 1.60
2. 1.76
3. 1.90
4. 2.20
b. What is the effect of the collection of accounts receivable on the current ratio and net working capital, respectively?
|
Current Ratio |
Net Working Capital |
|
1. No effect |
No effect |
|
2. Increase |
Increase |
|
3. Increase |
No effect |
|
4. No effect |
Increase |