Current assets totaled $100,000 and the current ratio was 1.5. Assume that the f

Question

Current assets totaled $100,000 and the current ratio was 1.5. Assume that the following transactions were completed. (1) paid $6,000 for merchandise purchased on short-term credit. (2) purchased a delivery truck for $11,000 cash. (3) wrote off a bad accoutn receivable for $3,000. (4) paid previously declared dividends in the amount of $28,000

The whole question is stated above, the answer is on this website. However, I do not understand how they are getting the numbers for the totals. Could someone please explain each one? Thanks!

Explanation / Answer

1) Calculating the current ratio after first transaction: Paid $6,000 for merchandise purchase on short-term credit Current assets = $100,000 Current ratio = 1.5 From Current ratio,                                        Current ratio = Current assets / Current liabilities                                                       1.5 = $100,000 / CL                                                       CL = $66667 Paid $6,000 for merchandise indicates that the cash balance has been decreased by $6,000 and decrease in accounts payable by $6,000. Current assets = $100,000 - $6,000                       = $94,000 Current liabilities = $66,667 - $6,000                           = $60,667 Computing the Current ratio:                                               Current ratio = $94,000 / $60,667                                                                   = 1.55 2) Purchased a delivery truck for $11,000 cash indicates the decrease in cash balance and increase in fixed assets. Current assets = $100,000 - $11,000                       = $89,000 Current liabilities = $66,667                                          Current ratio = $89,000 / $66,667                                                              = 1.335 3) Wrote off a bad account receivable for $3,000 is simply the removal of the receivable and the reduction of the allowance account. Current assets = $100,000 - $3,000                       = $97,000 Current liabilities = $66,667                                             Current ratio = $97,000 / $66,667                                                                 = 1.45 4) Paid previously declared dividends in the amount of $28,000 indicates the decrease in cash by $28,000 Current assets = $100,000 - $28,000                        = $72,000 Current liabilities = $66,667                                             Current ratio = $72,000 / $66,667                                                                 = 1.08                                         1) Calculating the current ratio after first transaction: Paid $6,000 for merchandise purchase on short-term credit Current assets = $100,000 Current ratio = 1.5 From Current ratio,                                        Current ratio = Current assets / Current liabilities                                                       1.5 = $100,000 / CL                                                       CL = $66667 Paid $6,000 for merchandise indicates that the cash balance has been decreased by $6,000 and decrease in accounts payable by $6,000. Current assets = $100,000 - $6,000                       = $94,000 Current liabilities = $66,667 - $6,000                           = $60,667 Computing the Current ratio:                                               Current ratio = $94,000 / $60,667                                                                   = 1.55 2) Purchased a delivery truck for $11,000 cash indicates the decrease in cash balance and increase in fixed assets. Current assets = $100,000 - $11,000                       = $89,000 Current liabilities = $66,667                                          Current ratio = $89,000 / $66,667                                                              = 1.335 3) Wrote off a bad account receivable for $3,000 is simply the removal of the receivable and the reduction of the allowance account. Current assets = $100,000 - $3,000                       = $97,000 Current liabilities = $66,667                                             Current ratio = $97,000 / $66,667                                                                 = 1.45 4) Paid previously declared dividends in the amount of $28,000 indicates the decrease in cash by $28,000 Current assets = $100,000 - $28,000                        = $72,000 Current liabilities = $66,667                                             Current ratio = $72,000 / $66,667                                                                 = 1.08                                        

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