Plum Corporation began the month of May with $600,000 of current assets, a current ratio of 2.60:1, and an acid-test ratio of 1.40:1. During the month, it completed the following transactions (the company uses a perpetual inventory system). May 2 Purchased $70,000 of merchandise inventory on credit. May 8 May 10 May 15 May 17 May 22 May 26 May 27 Sold merchandise inventory that cost $50,000 for $125,000 cash. Collected $32,000 cash on an account receivable. Paid $30,000 cash to settle an account payable. Wrote off a $5,000 bad debt against the Allowance for Doubtful Accounts account. Declared a $1 per share cash dividend on its 55,000 shares of outstanding common stock. Paid the dividend declared on May 22. Borrowed $85,000 cash by giving the bank a 30-day, 10% note. May 28 Borrowed $105,000 cash by signing a long-term secured note. May 29 Used the $190,000 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.
Plum Corporation began the month of May with $600,000 of current assets, a current ratio of 2.60:1, and an acid-test ratio of 1.40:1. During the month, it completed the following transactions (the company uses a perpetual inventory system). May 2 Purchased $70,000 of merchandise inventory on credit. May 8 May 10 May 15 May 17 May 22 May 26 May 27 Sold merchandise inventory that cost $50,000 for $125,000 cash. Collected $32,000 cash on an account receivable. Paid $30,000 cash to settle an account payable. Wrote off a $5,000 bad debt against the Allowance for Doubtful Accounts account. Declared a $1 per share cash dividend on its 55,000 shares of outstanding common stock. Paid the dividend declared on May 22. Borrowed $85,000 cash by giving the bank a 30-day, 10% note. May 28 Borrowed $105,000 cash by signing a long-term secured note. May 29 Used the $190,000 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.
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 $600,000 of current assets, a current ratio of 2.60:1, and an acid-test ratio of 1.40:1. During the month, it completed the following
transactions (the company uses a perpetual inventory system).
May 2 Purchased $70,000 of merchandise inventory on credit.
May 8
Sold merchandise inventory that cost $50,000 for $125,000 cash.
May 10
Collected $32,000 cash on an account receivable.
May 15 Paid $30,000 cash to settle an account payable.
May 17
Wrote off a $5,000 bad debt against the Allowance for Doubtful Accounts account.
Declared a $1 per share cash dividend on its 55,000 shares of outstanding common stock.
May 22
May 26
May 27
May 28
May 29
Paid the dividend declared on May 22.
Borrowed $85,000 cash by giving the bank a 30-day, 10% note.
Borrowed $105,000 cash by signing a long-term secured note.
Used the $190,000 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
Current Assets Quick Assets Current Liabilities
$
600,000 $ 323,077 $
600,000
230,769
230,769
Current Ratio
2.60
Acid-Test Ratio Working Capital
$
369,231
1.40
Transcribed Image Text:Balance after May 15
May 17
May 17
Balance after May 17
May 22
May 22
Balance after May 22
May 26
May 26
Balance after May 26
May 27
May 27
Balance after May 27
May 28
May 28
Balance after May 28
May 29
May 29
Balance after May 29
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