Plum Corporation began the month of May with $1,400,000 of current assets, a current ratio of 2.00:1, and an acid-test ratio of 1.70:1. During the month, it completed the following transactions (the company uses a perpetual inventory system). May 2 Purchased $65,000 of merchandise inventory on credit. May 8 Sold merchandise inventory that cost $55,000 for $140,000 cash. May 10 Collected $26,000 cash on an account receivable. May 15 Paid $29,500 cash to settle an account payable. May 17 Wrote off a $5,000 bad debt against the Allowance for Doubtful Accounts account. May 22 Declared a $1 per share cash dividend on its 62,000 shares of outstanding common stock. May 26 Paid the dividend declared on May 22. May 27 Borrowed $100,000 cash by giving the bank a 30-day, 10 % note. May 28 Borrowed $120,000 cash by signing a long-term secured note. May 29 Used the $220,000 cash proceeds from the notes to buy new machinery. Required: Complete the table below showing Plum's (1) current ratio, (2) acid-test ratio, and (3) working capital after each transaction. Note: Do not round intermediate calculations. Round your ratios to 2 decimal places and the working capitals to nearest dollar amount. Amounts to be deducted should be indicated with a minus sign. Transaction Beginning May 2 May 2 Balance after May 2 May 8 May 8 Balance after May 8 May 10 May 10 Balance after May 10 May 15 May 15 Balance after May 15 May 17 May 17 Current Assets Quick Assets Current Liabilities $ 1,400,000 $1,190,000 $ 65,000 1,465,000 (55,000) 1,410,000 26,000 (26,000) 1,190,000 140,000 1,330,000 700,000 65,000 765,000 765,000 Current Ratio Acid-Test Ratio Working Capital 1.70 $ 2.00 700,000 2.09 1.70 700,000
Plum Corporation began the month of May with $1,400,000 of current assets, a current ratio of 2.00:1, and an acid-test ratio of 1.70:1. During the month, it completed the following transactions (the company uses a perpetual inventory system). May 2 Purchased $65,000 of merchandise inventory on credit. May 8 Sold merchandise inventory that cost $55,000 for $140,000 cash. May 10 Collected $26,000 cash on an account receivable. May 15 Paid $29,500 cash to settle an account payable. May 17 Wrote off a $5,000 bad debt against the Allowance for Doubtful Accounts account. May 22 Declared a $1 per share cash dividend on its 62,000 shares of outstanding common stock. May 26 Paid the dividend declared on May 22. May 27 Borrowed $100,000 cash by giving the bank a 30-day, 10 % note. May 28 Borrowed $120,000 cash by signing a long-term secured note. May 29 Used the $220,000 cash proceeds from the notes to buy new machinery. Required: Complete the table below showing Plum's (1) current ratio, (2) acid-test ratio, and (3) working capital after each transaction. Note: Do not round intermediate calculations. Round your ratios to 2 decimal places and the working capitals to nearest dollar amount. Amounts to be deducted should be indicated with a minus sign. Transaction Beginning May 2 May 2 Balance after May 2 May 8 May 8 Balance after May 8 May 10 May 10 Balance after May 10 May 15 May 15 Balance after May 15 May 17 May 17 Current Assets Quick Assets Current Liabilities $ 1,400,000 $1,190,000 $ 65,000 1,465,000 (55,000) 1,410,000 26,000 (26,000) 1,190,000 140,000 1,330,000 700,000 65,000 765,000 765,000 Current Ratio Acid-Test Ratio Working Capital 1.70 $ 2.00 700,000 2.09 1.70 700,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Plum Corporation began the month of May with $1,400,000 of current assets, a current ratio of 2.00:1, and an acid-test ratio of 1.70:1.
During the month, it completed the following transactions (the company uses a perpetual inventory system).
May 2 Purchased $65,000 of merchandise inventory on credit.
May 8 Sold merchandise inventory that cost $55,000 for $140,000 cash.
May 10 Collected $26,000 cash on an account receivable.
May 15
Paid $29,500 cash to settle an account payable.
May 17
Wrote off a $5,000 bad debt against the Allowance for Doubtful Accounts account.
May 22 Declared a $1 per share cash dividend on its 62,000 shares of outstanding common stock.
May 26 Paid the dividend declared on May 22.
May 27 Borrowed $100,000 cash by giving the bank a 30-day, 10 % note.
May 28 Borrowed $120,000 cash by signing a long-term secured note.
May 29 Used the $220,000 cash proceeds from the notes to buy new machinery.
Required:
Complete the table below showing Plum's (1) current ratio, (2) acid-test ratio, and (3) working capital after each transaction.
Note: Do not round intermediate calculations. Round your ratios to 2 decimal places and the working capitals to nearest dollar
amount. Amounts to be deducted should be indicated with a minus sign.
Transaction
Beginning
May 2
May 2
Balance after May 2
May 8
May 8
Balance after May 8
May 10
May 10
Balance after May 10
May 15
May 15
Balance after May 15
May 17
May 17
Balance after May 17
Current Assets Quick Assets Current Liabilities
$ 1,400,000 $ 1,190,000 $
65,000
1,465,000
(55,000)
1,410,000
26,000
(26,000)
1,190,000
140,000
1,330,000
700,000
65,000
765,000
765,000
Current Ratio Acid-Test Ratio Working Capital
2.00
1.70 $
700,000
2.09
1.70
700,000
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