Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses A

Question

Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Accounts payable Notes due within one year Accrued liabilities S 78,000 S 23,500 S 369,200 S 480,800 S 13,600 S 214,400 S 116,000 S 67,200 During the year, Denna Company completed the following transactions x. Paid a cash dividend previously declared, $38,000 a. Issued additional shares of common stock for cash, $216,000 b. Sold inventory costing $76,400 for $108,000, on account c. Wrote off uncollectible accounts in the amount of $13,200, reducing the accounts receivable balance accordingly d. Declared a cash dividend, $38,000 e. Paid accounts payable, $112,800 . Borrowed cash on a short-term note with the bank, $72,000 g. Sold inventory costing $16,890 for $11,260 cash h. Purchased inventory on account, $56,000 i. Paid off all short-term notes due, $188,000. j. Purchased equipment for cash, $81,400 k. Sold marketable securities costing $13,500 for cash, $11,250 I. Collected cash on accounts receivable, $88,800 Required 1. Compute the following amounts and ratios as of the beginning of the year. (Round your ratios to 2 decimal places.) a. Working capital b. Current ratio c. Acid-test ratio 2. Indicate the effect of each of the transactions given above on working capital, the current ratio, and the acid-test ratio. Give the effect in terms of increase, decrease, or none. Item (x) is given as an example: Consider each transaction independently and indicate their effects as compared to the ratios and amounts at the beginning of the period The Effect on Transaction x. Paid a cash dividend previously declared None a. Issued capital stock for cash b. Sold inventory at a gain C. Wrote off uncollectible accounts d.|Declared a cash dividend e. Paid accounts payable f. Borrowed on a short-term note g. Sold inventory at a loss h. Purchased inventory on account i. Paid short-term notes due j. Purchased equipment for cash k. Sold marketable securities at a loss l. Collected accounts receivable Working Capital Acid-Test Ratio Increase Increase

Explanation / Answer

The following table gives values of Total current assets and current liabilities

Working capital = Total current assets - Total current liabilities

Current ratio = Total current assets / Total current liabilities

Acid test ratio = (Cash + Marketable securities + Accounts receivables) / Total current liabilities

Question - 2

Cash 78000 Marketable securities 23500 Accounts receivables 369200 Inventory 480800 Prepaid expenses 13600 Total current assets 965100 Accounts payable 214400 Notes due within 1year 116000 Accrued liabilities 67200 Total current liabilities 397600

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