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.
Denna Company’s
| Cash | $ 69,000 |
|---|---|
| Marketable securities | $ 25,900 |
| $ 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:
1. Compute the following amounts and ratios as of the beginning of the year:
a. Working capital.
b.
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.
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:
1. Compute the following amounts and ratios as of the beginning of the year:
a. Working capital.
b. Current ratio.
c. Acid-test ratio
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
