Plum Corporation began the month of May with $800,000 of current assets, a current ratio of 1.90:1, 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 $60,000 of merchandise inventory on credit. May 8 Sold merchandise inventory that cost $60,000 for $135,000 cash. May 10 Collected $28,000 cash on an account receivable. May 15 Paid $23,000 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 55,000 shares of outstanding common stock. May 26 Paid the dividend declared on May 22. May 27 Borrowed $90,000 cash by giving the bank a 30-day, 10% note. May 28 Borrowed $115,000 cash by signing a long-term secured note. May 29 Used the $205,000 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 $800,000 of current assets, a current ratio of 1.90:1, 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 $60,000 of merchandise inventory on credit. May 8 Sold merchandise inventory that cost $60,000 for $135,000 cash. May 10 Collected $28,000 cash on an account receivable. May 15 Paid $23,000 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 55,000 shares of outstanding common stock. May 26 Paid the dividend declared on May 22. May 27 Borrowed $90,000 cash by giving the bank a 30-day, 10% note. May 28 Borrowed $115,000 cash by signing a long-term secured note. May 29 Used the $205,000 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 $800,000 of current
assets, a current ratio of 1.90:1, 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 $60,000 of merchandise inventory on credit.
May 8 Sold merchandise inventory that cost $60,000 for $135,000
cash.
May 10 Collected $28,000 cash on an account receivable.
May 15 Paid $23,000 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 55,000 shares
of outstanding common stock.
May 26 Paid the dividend declared on May 22.
May 27 Borrowed $90,000 cash by giving the bank a 30-day, 10%
note.
May 28 Borrowed
$115,000 cash by signing a long-term secured note.
May 29 Used the $205,000 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.
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