Simply Spa Collections had a current ratio of 2.5 to 1 on December 31 of the current year. On that date, the company's assets were as follows:
Cash .................$ 100,000
Accounts receivable (net) .........$ 620,000
Inventory ...............$ 955,000
Prepaid expenses ............$ 24,000
Equipment (net) .............$ 2,340,000
Total assets .............. $ 4,039,000
Required:
a. What were the company's current liabilities on December 31?
b. What was the company's acid-test ratio on December 31?
c. The company paid an account payable of $165,000 immediately after December 31.
What effect did this have on the current ratio? Show computations.