PE 4-6B Working capital and current ratio

The following balance sheet data for Finn Company are shown below.
                                    2012                         2011
Current assets           $288,000                 $171,000
Current liabilities       120,000                     90,000

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 ...............      $288,000            $171,000
 Current liabilities ...........      120,000               90,000
 Working capital..............    $168,000            $ 81,000
 Current ratio...................     2.40                      1.90
                            ($288,000 ÷ $120,000)    ($171,000 ÷ $90,000)

b. The change from 1.90 to 2.40 indicates a favorable trend.