Denna Company’s working capital accounts at the beginning of the year follow: Cash $ 69,000 Marketable securities $ 25,900 Accounts receivable, net $ 347,600 Inventory $ 457,400 Prepaid expenses $ 7,800 Accounts payable $ 198,200 Notes due within one year $ 98,000 Accrued liabilities $ 59,100 During the year, Denna Company completed the following transactions: Paid a cash dividend previously declared, $29,000. Issued additional shares of common stock for cash, $198,000. Sold inventory costing $69,200 for $99,000, on account. Wrote off uncollectible accounts in the amount of $9,600, reducing the accounts receivable balance accordingly. Declared a cash dividend, $29,000. Paid accounts payable, $98,400. Borrowed cash on a short-term note with the bank, $58,500. Sold inventory costing $19,800 for $13,200 cash. Purchased inventory on account, $49,250. Paid off all short-term notes due, $156,500. Purchased equipment for cash, $74,200. Sold marketable securities costing $15,900 for cash, $13,250. Collected cash on accounts receivable, $78,900. Required: 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. Transaction The Effect on Working Capital The Effect on Current Ratio The Effect on Acid-Test Ratio x. Paid a cash dividend previously declared None Increase Increase a. Issued additional shares of common 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 j. Purchased equipment for cash k. Sold marketable securities at a loss l. Collected accounts receivable

Denna Company’s working capital accounts at the beginning of the year follow: Cash $ 69,000 Marketable securities $ 25,900 Accounts receivable, net $ 347,600 Inventory $ 457,400 Prepaid expenses $ 7,800 Accounts payable $ 198,200 Notes due within one year $ 98,000 Accrued liabilities $ 59,100 During the year, Denna Company completed the following transactions: Paid a cash dividend previously declared, $29,000. Issued additional shares of common stock for cash, $198,000. Sold inventory costing $69,200 for $99,000, on account. Wrote off uncollectible accounts in the amount of $9,600, reducing the accounts receivable balance accordingly. Declared a cash dividend, $29,000. Paid accounts payable, $98,400. Borrowed cash on a short-term note with the bank, $58,500. Sold inventory costing $19,800 for $13,200 cash. Purchased inventory on account, $49,250. Paid off all short-term notes due, $156,500. Purchased equipment for cash, $74,200. Sold marketable securities costing $15,900 for cash, $13,250. Collected cash on accounts receivable, $78,900. Required: 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. Transaction The Effect on Working Capital The Effect on Current Ratio The Effect on Acid-Test Ratio x. Paid a cash dividend previously declared None Increase Increase a. Issued additional shares of common 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 j. Purchased equipment for cash k. Sold marketable securities at a loss l. Collected accounts receivable

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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Question

Denna Company’s working capital accounts at the beginning of the year follow:

Cash	$ 69,000
Marketable securities	$ 25,900
Accounts receivable, net	$ 347,600
Inventory	$ 457,400
Prepaid expenses	$ 7,800
Accounts payable	$ 198,200
Notes due within one year	$ 98,000
Accrued liabilities	$ 59,100

During the year, Denna Company completed the following transactions:

Paid a cash dividend previously declared, $29,000.
Issued additional shares of common stock for cash, $198,000.
Sold inventory costing $69,200 for $99,000, on account.
Wrote off uncollectible accounts in the amount of $9,600, reducing the accounts receivable balance accordingly.
Declared a cash dividend, $29,000.
Paid accounts payable, $98,400.
Borrowed cash on a short-term note with the bank, $58,500.
Sold inventory costing $19,800 for $13,200 cash.
Purchased inventory on account, $49,250.
Paid off all short-term notes due, $156,500.
Purchased equipment for cash, $74,200.
Sold marketable securities costing $15,900 for cash, $13,250.
Collected cash on accounts receivable, $78,900.

Required:

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.

Transaction	The Effect on Working Capital	The Effect on Current Ratio	The Effect on Acid-Test Ratio
x. Paid a cash dividend previously declared	None	Increase	Increase
a. Issued additional shares of common 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
j. Purchased equipment for cash
k. Sold marketable securities at a loss
l. Collected accounts receivable

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