On June 30, 2018, Rundle Company’s total current assets were $500,500 and its to
ID: 2335170 • Letter: O
Question
On June 30, 2018, Rundle Company’s total current assets were $500,500 and its total current liabilities were $272,500. On July 1, 2018, Rundle issued a short-term note to a bank for $40,400 cash.
Required
Compute Rundle’s working capital before and after issuing the note.
Compute Rundle’s current ratio before and after issuing the note. (Round your answers to 2 decimal places.)
On June 30, 2018, Vernon Company’s total current assets were $501,000 and its total current liabilities were $278,500. On July 1, 2018, Vernon issued a long-term note to a bank for $39,000 cash.
Required
Compute Vernon’s working capital before and after issuing the note.
Compute Vernon’s current ratio before and after issuing the note. (Round your answers to 1 decimal place.)
Before the transaction After the transaction a. Working Capital b. Current RatioOn June 30, 2018, Vernon Company’s total current assets were $501,000 and its total current liabilities were $278,500. On July 1, 2018, Vernon issued a long-term note to a bank for $39,000 cash.
Required
Compute Vernon’s working capital before and after issuing the note.
Compute Vernon’s current ratio before and after issuing the note. (Round your answers to 1 decimal place.)
Before the transaction After the transaction a. Working Capital b. Current RatioExplanation / Answer
Part 1
When Short term notes are issues cash increases which ultimately adds to Current assets. Short term notes is a current liability so current liability also increases
Total Current assets (A)
Total current liabilities(B)
Working Capital(A-B)
Current Ratio (A/B)
$ 500,500.00
$ 272,500.00
$ 228,000.00
1.84
Issue of short term notes payable
$ 40,400.00
$ 40,400.00
Current assets after notes issue
$ 540,900.00
$ 312,900.00
$ 228,000.00
1.73
Before the transaction
After the transaction
a.
Working Capital
$ 228,000.00
$ 228,000.00
b.
Current Ratio
1.84
1.73
Part 2
When Long term notes are issues cash increases which ultimately adds to Current assets but current liabilities does not increase because long term notes is a long term liability.
Total Current assets (A)
Total current liabilities(B)
Working Capital(A-B)
Current Ratio (A/B)
$ 501,000.00
$ 278,500.00
$ 222,500.00
1.80
Issue of short term notes payable
$ 39,000.00
Current assets after notes issue
$ 540,000.00
$ 278,500.00
$ 261,500.00
1.94
Before the transaction
After the transaction
a.
Working Capital
$ 222,500.00
$ 261,500.00
b.
Current Ratio
1.8
1.9
Total Current assets (A)
Total current liabilities(B)
Working Capital(A-B)
Current Ratio (A/B)
$ 500,500.00
$ 272,500.00
$ 228,000.00
1.84
Issue of short term notes payable
$ 40,400.00
$ 40,400.00
Current assets after notes issue
$ 540,900.00
$ 312,900.00
$ 228,000.00
1.73
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