Q1:Denna company's working capital accounts at December 31, 19x6, aregiven below:Cash$ 50,000Marketable securities...30,000Accounts receivable (net).200,000Inventory..Prepaid expenses..Accounts payable.Notes due within one year210,00010,000150,00030,000Accrued liabilities20,000During 19x7, Denna Company completed the following transactions:x. Paid a cash dividend previously declared, $12,000.a. Issued additional shares of capital stock for cash, $100,000.b. Sold inventory costing $50,000 for $80,000, on account.c. Wrote off uncollectible accounts in the amount of $10,000.d. Declared a cash dividend, $ 15,000.e. Paid accounts payable, $ 50,000.f. Borrowed cash on a short-term note with the bank, $35,000.g. Sold inventory costing $15,000 for $10,000 cash.h. Purchased inventory on account, $60,0000.i. Paid off all short-term notes due, $30,000.j. Purchased equipment for cash, $15,000.k. Sold marketable securities costing $18,000 for cash, $15,000.I. Collected cash on accounts receivable, $80,000.Required:1- Compute the following amounts and ratios as of December 31,19x6a. Working capitalb. Current ratioc. Acid-test ratio2- For 19x7, indicate the effect of each of the transactions given above on workingcapital, the current ratio and the acid-test ratio. Give the effect in terms of increase,decrease, or none. Item x is given below as an example of the format to use:The effect onTransactionsWorking capitalCurrent ratioAcid-test ratio(x)NoneIncreaseincrease

Solution: Introduction: Current Ratio is a measure of short term debt paying ability of a company…

2- For 19x7, 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 below as an example of the format to use: The effect on Transactions Working capital Current ratio Acid-test ratio (x) None Increase increase

2- For 19x7, 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 below as an example of the format to use: The effect on Transactions Working capital Current ratio Acid-test ratio (x) None Increase increase

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Q1:Denna company's working capital accounts at December 31, 19x6, are
given below:
Cash
$ 50,000
Marketable securities...
30,000
Accounts receivable (net).
200,000
Inventory..
Prepaid expenses..
Accounts payable.
Notes due within one year
210,000
10,000
150,000
30,000
Accrued liabilities
20,000
During 19x7, Denna Company completed the following transactions:
x. Paid a cash dividend previously declared, $12,000.
a. Issued additional shares of capital stock for cash, $100,000.
b. Sold inventory costing $50,000 for $80,000, on account.
c. Wrote off uncollectible accounts in the amount of $10,000.
d. Declared a cash dividend, $ 15,000.
e. Paid accounts payable, $ 50,000.
f. Borrowed cash on a short-term note with the bank, $35,000.
g. Sold inventory costing $15,000 for $10,000 cash.
h. Purchased inventory on account, $60,0000.
i. Paid off all short-term notes due, $30,000.
j. Purchased equipment for cash, $15,000.
k. Sold marketable securities costing $18,000 for cash, $15,000.
I. Collected cash on accounts receivable, $80,000.
Required:
1- Compute the following amounts and ratios as of December 31,19x6
a. Working capital
b. Current ratio
c. Acid-test ratio
2- For 19x7, 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 below as an example of the format to use:
The effect on
Transactions
Working capital
Current ratio
Acid-test ratio
(x)
None
Increase
increase

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