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Suppose the following financial data were reported by 3M Company for 2014 and 2015 (dollars in millions).
3M Company
Balance Sheets (partial)

2015

2014

Current assets
Cash and cash equivalents $ 3,040 $1,849
Accounts receivable, net 3,250 3,195
Inventories 2,639 3,013
Other current assets 1,866 1,541
Total current assets $10,795 $9,598
Current liabilities $ 4,897 $5,839




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Calculate the current ratio and working capital for 3M for 2014 and 2015. (Round current ratio to 2 decimal places, e.g. 1.25 : 1.)
Current ratio
2014
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:1
2015
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:1
Working capital
2014
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million
2015
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million
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Your answer is incorrect. Try again.
Suppose that at the end of 2015, 3M management used $200 million cash to pay off $200 million of accounts payable. How would its current ratio and working capital have changed? (Round current ratio to 2 decimal places, e.g. 1.25 : 1.)
Current ratio
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:1
Working capital
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million

Answer :

Answer:

For 2014

Current ratio = 2.20 times

Working capital = $5,898

For 2015

Current ratio = 1.64 times

Working capital = $3,759

For 2015

Current ratio = 1.67 times

Working capital = $3,759

Explanation:

We know that

Current ratio = Current Assets ÷ Current liabilities

And, the working capital = Current Assets - Current liabilities

So in the first case

For 2014,

Current ratio =  $10,795 ÷ $4,897 = 2.20 times

Working capital = $10,795 - $4,897 = $5,898

For 2015

Current ratio =  $9,598 ÷ $5,839 = 1.64 times

Working capital =  $9,598 - $5,839  = $3,759

And in the second case

For 2015

Current assets = $9,598 - $200 = $9,398

Current liabilities = $5,839 - $200 = $5,639

So the

Current ratio =  $9,398 ÷ $5,639 = 1.67 times

Working capital =  $9,398 - $5,639  = $3,759

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