Question & Answer: partment prepare a preliminary balance sheet on December 30, 2014, so that the CFO could get an idea of how the company stood. He knows tha…..

1.   Current ratio = Total current assets / Total current liabilities

= [cash $26,945 + Accounts receivable 31,847 + prepaid insurance 6,702 ] / [ Accounts payable $21,945 + Salaries and wages payable 11,847]

= $65,494 / $33,792

= 1.9 : 1

Working capital = Total current assets – Total current liabilities

= $65,494 – $33,792

= $31702

2. CFO requested that $21,945 of cash be used to pay off the balance of the accounts payable account on December 31, 2014 ;

   Current ratio = Total current assets / Total current liabilities

= [cash ($26,945 – $21945 ) + Accounts receivable 31,847 + prepaid insurance 6,702 ] / [ Accounts payable ($21,945 – $21945) + Salaries and wages payable 11,847]

= [cash $5000 + Accounts receivable 31,847 + prepaid insurance 6,702 ] / [ Accounts payable $0 + Salaries and wages payable 11,847]

= 43549 / 11847

= 3.7 : 1

Working capital = Total current assets – Total current liabilities

= 43549 – 11847

= $31702