PE 4-6A Working capital and current ratio

The following balance sheet data for Mayer Company are shown below.
                                        2012                             2011
Current assets                $840,000                  $1,430,000
Current liabilities            600,000                       550,000

a. Determine the working capital and current ratio for 2012 and 2011.
b. Does the change in the current ratio from 2011 to 2012 indicate a favorable or an
unfavorable trend?

Answer:
a.                                                  2012                   2011
 Current assets ...............           $840,000          $1,430,000
 Current liabilities ...........           600,000              550,000
 Working capital..............          $240,000            $ 880,000
 Current ratio...................              1.40                    2.60
                                 ($840,000 ÷ $600,000)      ($1,430,000 ÷ $550,000)

b. The change from 2.60 to 1.40 indicates an unfavorable trend.