Selected amounts from Alex Company’s balance sheet from the beginning of the year follow:   Cash                                                P70,000    Marketable securities           P12,000 Accounts receivable (net)                350,000    Inventory                               460,000 Prepaid expenses                                 8,000    Plant and equipment (net)    950,000 Accounts payable                            200,000    Accrued liabilities                     60,000 Notes due within one year               100,000    Bonds payable in 5 years        140,000 During the year, the company completed the following transactions: Purchased inventory on account, P50,000 b. Declared cash dividends P30,000 Paid accounts payable P100,000 Collected cash on accounts receivable P80,000 e. Purchased equipment for cash P75,000 Paid a cash dividend previously declared P30,000 Borrowed cash on a short-term note with the bank P60,000 h. Sold inventory costing P70,000 for P100,000, on account Wrote off  uncollectible  accounts  in  the  amount  of  P10,000.  The  company  uses  the allowance method of accounting for bad debts. Issued additional shares of capital stock for cash, P200,000 k. Paid off all short-term notes due P160,000 Required: Compute the following ratios as of the beginning of the year: Working capital, Current ratio and Acid-test ratio Indicate the effect of the transactions given above on working capital, current ratio and acid test ratio. Give the effect in terms of INCREASE, DECREASE or NONE.

FINANCIAL ACCOUNTING
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Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Selected amounts from

Alex Company’s balance sheet from the beginning of the year follow:

 

Cash                                                P70,000    Marketable securities           P12,000

Accounts receivable (net)                350,000    Inventory                               460,000

Prepaid expenses                                 8,000    Plant and equipment (net)    950,000

Accounts payable                            200,000    Accrued liabilities                     60,000

Notes due within one year               100,000    Bonds payable in 5 years        140,000

During the year, the company completed the following transactions:

  1. Purchased inventory on account, P50,000 b. Declared cash dividends P30,000
  2. Paid accounts payable P100,000
  3. Collected cash on accounts receivable P80,000 e. Purchased equipment for cash P75,000
  4. Paid a cash dividend previously declared P30,000
  5. Borrowed cash on a short-term note with the bank P60,000 h. Sold inventory costing P70,000 for P100,000, on account
  6. Wrote off  uncollectible  accounts  in  the  amount  of  P10,000.  The  company  uses  the allowance method of accounting for bad debts.
  7. Issued additional shares of capital stock for cash, P200,000 k. Paid off all short-term notes due P160,000

Required:

  1. Compute the following ratios as of the beginning of the year: Working capital, Current ratio and Acid-test ratio
  2. Indicate the effect of the transactions given above on working capital, current ratio and acid test ratio. Give the effect in terms of INCREASE, DECREASE or NONE.
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