Selected amounts from Reingold Company's balance sheet from the beginning of the year follow:
|
|
Cash |
$ |
76,000 |
Marketable Securities |
$ |
15,000 |
Accounts receivable, net |
$ |
364,400 |
Inventory |
$ |
475,600 |
Prepaid expenses |
$ |
12,200 |
Plant and equipment, net |
$ |
1,010,000 |
Accounts payable |
$ |
210,800 |
Accrued liabilities |
$ |
65,400 |
Notes due within one year |
$ |
112,000 |
Bonds payable in five years |
$ |
146,000 |
|
During the year, the company completed the following transactions: |
x. |
Purchased inventory on account, $54,500. |
a. |
Declared a cash dividend, $36,000. |
b. |
Paid accounts payable, $109,600. |
c. |
Collected cash on accounts receivable, $86,600. |
d. |
Purchased equipment for cash, $79,800. |
e. |
Paid a cash dividend previously declared, $36,000. |
f. |
Borrowed cash on a short-term note with the bank, $69,000. |
g. |
Sold inventory costing $74,800 for $106,000, on account. |
h. |
Wrote off uncollectible accounts in the amount of $12,400 reducing the accounts receivable balance accordingly.
|
i. |
Sold marketable securities costing $15,000 for cash, $11,400. |
j. |
Issued additional shares of common stock for cash, $212,000. |
k. |
Paid off all short-term notes due, $181,000. |
1. |
Compute the following amounts and ratios as of the beginning of the year: |
b. |
Current ratio. (Round your answer to 2 decimal places.) |
c. |
Acid-test ratio. (Round your answer to 2 decimal places.) |
2. |
Indicate the effect of each of the transactions given above on working capital, the current ratio, and the acid-test ratio. Give the effect in terms of increase, decrease, or none. Item (x) is given as an example: Consider each transaction independently and indicate their effects as compared to the ratios and amounts at the beginning of the period.
|
|
|
The Effect on
|
|
Transaction |
Working Capital |
Current Ratio |
Acid-Test Ratio |
(x) |
Purchased inventory on account |
None |
Decrease |
Decrease |
(a) |
Declared a cash dividend |
(Click to select)IncreaseDecreaseNone |
(Click to select)IncreaseDecreaseNone |
(Click to select)IncreaseDecreaseNone |
(b) |
Paid accounts payable |
(Click to select)IncreaseDecreaseNone |
(Click to select)IncreaseDecreaseNone |
(Click to select)IncreaseDecreaseNone |
(c) |
Collected cash on accounts receivable |
(Click to select)IncreaseDecreaseNone |
(Click to select)IncreaseDecreaseNone |
(Click to select)IncreaseDecreaseNone |
(d) |
Purchased equipment for cash |
(Click to select)IncreaseDecreaseNone |
(Click to select)IncreaseDecreaseNone |
(Click to select)IncreaseDecreaseNone |
(e) |
Paid a cash dividend previously declared |
(Click to select)IncreaseDecreaseNone |
(Click to select)IncreaseDecreaseNone |
(Click to select)IncreaseDecreaseNone |
(f) |
Borrowed cash on a short-term note with the bank |
(Click to select)IncreaseDecreaseNone |
(Click to select)IncreaseDecreaseNone |
(Click to select)IncreaseDecreaseNone |
(g) |
Sold inventory on account at more than its cost |
(Click to select)IncreaseDecreaseNone |
(Click to select)IncreaseDecreaseNone |
(Click to select)IncreaseDecreaseNone |
(h) |
Wrote off uncollectible accounts |
(Click to select)IncreaseDecreaseNone |
(Click to select)IncreaseDecreaseNone |
(Click to select)IncreaseDecreaseNone |
(i) |
Sold marketable securities at less than its cost |
(Click to select)IncreaseDecreaseNone |
(Click to select)IncreaseDecreaseNone |
(Click to select)IncreaseDecreaseNone |
(j) |
Issued additional shares of common stock for cash |
(Click to select)IncreaseDecreaseNone |
(Click to select)IncreaseDecreaseNone |
(Click to select)IncreaseDecreaseNone |
(k) |
Paid off all short-term notes due |
(Click to select)IncreaseDecreaseNone |
(Click to select)IncreaseDecreaseNone |
(Click to select)IncreaseDecreaseNone |