Chapter 18, Problem 18.6E

(a)

To determine

Current Ratio: A part of liquidity ratios, current ratio reflects the ability to oblige the short term debts of a company. It is calculated based on the current assets and current liabilities; a company has in an accounting period.

Acid-Test Ratio: It is a ratio used to determine a company’s ability to pay back its current liabilities using only liquid assets that are current assets except the inventory and prepaid expenses.

To compute: The current ratio at February 1 and after each transaction.

(b)

To determine

To compute: The acid-test ratio at February 1 and after each transaction.