6. 2.00 points E13-13 Analyzing the Impact of Selected Transactions on the Curre
ID: 2412667 • Letter: 6
Question
6. 2.00 points E13-13 Analyzing the Impact of Selected Transactions on the Current Ratio [LO 13-4, LO 13-5] The Sports Authority, Inc. is a private full-line sporting goods retailer. Assume one of the Sports Authority stores reported current assets of $87,850 and its current ratio was 1.75, and then completed the following transactions: (1) paid $6,100 on accounts payable, (2) purchased a delivery truck for $11,000 cash, (3) wrote off a bad account receivable for $1,800, and (4) paid previously declared dividends in the amount of $23,500. Required Compute the updated current ratio after each transaction, by showing the cumulative effects of the transactions in the following table. (Round your answers to 2 decimal places.) Current Ratio 2.16 Transaction (1) Transaction (2) Transaction (3) Transaction (4)Explanation / Answer
Answer of Transaction 1:
Current Liabilities = Current Assets / Current Ratio
Current Liabilities = $87,850 / 1.75
Current Liabilities = $50,200
New Current Liabilities = Current Liabilities + Accounts Payable
New Current Liabilities = $50,200 - $6,100
New Current Liabilities = $44,100
New Current Assets = $87,850 - $6,100
New Current Assets =$81,750
Current Ratio = Current Assets / Current Liabilities
Current Ratio = $81,750 / $44,100
Current Ratio = 1.85:1
Answer of Transaction 2:
New Current Liabilities = $44,100
New Current Assets = $81,750 - $11,000
New Current Assets =$70,750
Current Ratio = Current Assets / Current Liabilities
Current Ratio = $70,750 / $44,100
Current Ratio = 1.60:1
Answer of Transaction 3:
New Current Liabilities = $44,100
New Current Assets = $70,750 - $1,800
New Current Assets =$68,950
Current Ratio = Current Assets / Current Liabilities
Current Ratio = $68,950 / $44,100
Current Ratio = 1.56:1
Answer of Transaction 4:
New Current Liabilities = $44,100
New Current Assets = $68,950 - $23,500
New Current Assets =$45,450
Current Ratio = Current Assets / Current Liabilities
Current Ratio = $45,450 / $44,100
Current Ratio = 1.03:1
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