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On June 30, 2018, Finch Company’s total current assets were $499,000 and its total current liabilities were $270,000. On July 1, 2018, Finch issued a long-term note to a bank for $42,000 cash. Required Compute Finch’s working capital before and after issuing the note. Compute Finch’s current ratio before and after issuing the note. (Round your answers to 1 decimal place.)

Respuesta :

Answer: Formula for working capital = Current Assets - Current liabilities

Current Working Capital = (499,000-270000) =229,000

Current Current Ratio = 499,000/270,000 = 1.8

After Notes is issued

Finch issues a long term note for cash which means their current assets increase as cash is a current asset but their current liabilities do not increase as the note is a long term one.

New working capital = (499,000+42000-270000)= 271,000

New Current Ratio = (499,000+42,000)/270000 =2.0

                                       

Explanation:

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