The following financial data were taken from the annual financial statements of Smith corporation:

2007 2008 2009

Current assets $450,000 $400,000 $500,000
Current liabilities $390,000 $300,000 $340,000
Sales $1,450,000 $1,500,000 $1,400,000
Cost of goods sold $1,180,000 $1,020,000 $1,120,000
Inventory $280,000 $200,000 $250,000
Accounts receivable $120,000 $110,000 $105,000

a. Based on the data, calculate the following for 2008 and 2009:
1. Working capital
2. Current ratio
3. Acid-test ratio
4. Accounts receivable turnover
5. Merchandise inventory turnover
6. Inventory turnover in days

b. Evaluate the results of your computations in regard to the short-term liquidity of the firm.

a. To calculate the following ratios and figures for 2008 and 2009, we will use the given financial data:

1. Working capital:
Working capital = Current Assets - Current Liabilities

For 2008:
Working capital = $400,000 - $300,000 = $100,000

For 2009:
Working capital = $500,000 - $340,000 = $160,000

2. Current ratio:
Current ratio = Current Assets / Current Liabilities

For 2008:
Current ratio = $400,000 / $300,000 = 1.33

For 2009:
Current ratio = $500,000 / $340,000 = 1.47

3. Acid-test ratio:
Acid-test ratio = (Current Assets - Inventory) / Current Liabilities

For 2008:
Acid-test ratio = ($400,000 - $200,000) / $300,000 = 0.67

For 2009:
Acid-test ratio = ($500,000 - $250,000) / $340,000 = 0.73

4. Accounts receivable turnover:
Accounts receivable turnover = Sales / Average Accounts Receivable

For 2008:
Average Accounts Receivable = ($120,000 + $110,000) / 2 = $115,000
Accounts receivable turnover = $1,500,000 / $115,000 ≈ 13.04

For 2009:
Average Accounts Receivable = ($110,000 + $105,000) / 2 = $107,500
Accounts receivable turnover = $1,400,000 / $107,500 ≈ 13.02

5. Merchandise inventory turnover:
Merchandise inventory turnover = Cost of Goods Sold / Average Inventory

For 2008:
Average Inventory = ($280,000 + $200,000) / 2 = $240,000
Merchandise inventory turnover = $1,020,000 / $240,000 ≈ 4.25

For 2009:
Average Inventory = ($200,000 + $250,000) / 2 = $225,000
Merchandise inventory turnover = $1,120,000 / $225,000 ≈ 4.98

6. Inventory turnover in days:
Inventory turnover in days = 365 days / Merchandise inventory turnover

For 2008:
Inventory turnover in days = 365 / 4.25 ≈ 85.88 days

For 2009:
Inventory turnover in days = 365 / 4.98 ≈ 73.29 days

b. The evaluation of the short-term liquidity of the firm based on the results:
- Working capital increased from $100,000 in 2008 to $160,000 in 2009, indicating a positive trend in the firm's ability to cover short-term obligations.
- The current ratio increased from 1.33 in 2008 to 1.47 in 2009, suggesting an improvement in the firm's ability to meet its short-term liabilities.
- The acid-test ratio slightly increased from 0.67 in 2008 to 0.73 in 2009, indicating a slight improvement in the firm's ability to cover short-term obligations without relying on inventory.
- The accounts receivable turnover remained relatively stable at around 13 times per year, indicating that the firm collects its accounts receivable at a consistent rate.
- The merchandise inventory turnover increased from 4.25 in 2008 to 4.98 in 2009, suggesting that the firm was able to sell its inventory at a faster pace.
- The inventory turnover in days decreased from 85.88 days in 2008 to 73.29 days in 2009, indicating that inventory was held for a shorter period before being sold.

Overall, the firm's short-term liquidity improved from 2008 to 2009, as indicated by the increase in working capital, current ratio, acid-test ratio, and the improvement in inventory turnover indicators. The stable accounts receivable turnover suggests efficient collection practices. This suggests positive prospects for the firm's ability to meet its short-term obligations and manage its inventory effectively.