Cummings, Inc operates an equipment rental company and sells related supplies. The company's current assets and current liabilities at the beginning of the year are listed in the table below.
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During the year, Cummings completed the following transactions:
1. Paid a cash dividend previously declared of $18,000.
2. Issued additional shares of common stock for cash, $150,000.
3. Sold inventory costing $80,000 for $115,000, on account
4. Declared a cash dividend of $19,000.
5. Paid accounts payable of $85,000.
6. Borrowed cash on a short-term note with the bank, $57,000.
7. Purchased inventory on account for $91,000.
8. Paid off all short-term notes due, $57,000.
9. Purchased equipment for cash, $23,000.
10. Sold marketable securities costing $29,000 for $25,000.
11. Collected cash on accounts receivable, $137,000.
12. Paid interest on a note payable, $3,500.
Required:
a. Compute the following amounts and ratios at the beginning of the year:
1. Current ratio.
2. Acid-test ratio (quick ratio).
b. Indicate the effect of each transaction listed above on the current ratio and the acid-test ratio (quick ratio).Give the effect in terms of increase, decrease, or none. Part a is done as an example below to show the format used.
Effect on
Current Acid-Test Ratio
Ratio (Quick Ratio)
Increase....... increase
Paid a cash dividend previouslydeclared