Answered: Denna Company’s working capital…

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter15: Financial Statement Analysis

Section: Chapter Questions

Problem 52E: Juroe Company provided the following income statement for last year: Juroes balance sheet as of...

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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:

1. Compute the following amounts and ratios as of the beginning of the year:

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.

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.