Effect of Transactions on Current Position Analysis Data pertaining to the curre
ID: 2338923 • Letter: E
Question
Effect of Transactions on Current Position Analysis Data pertaining to the current position of Lucroy Industries Inc. follow: Cash Marketable securities Accounts and notes receivable (net) Inventories Prepaid expenses Accounts payable Notes payable (short-term) Accrued expenses Required: 1. Compute (a) the working capital, (b) the current ratio, and (c) the quick ratio. Round ratios to one decimal place a. Working capital b. Current ratio c. Quick ratio $435,000 167,500 300,000 750,000 42,000 190,000 260,000 320,000 924,500 2.2Explanation / Answer
(1).
a. Working capital
$924500
b. Current ratio
2.2
c. Quick ratio
1.2
(2).
Transactions
Working capital
Current ratio
Quick ratio
(a). Sold marketable securities at no gain or loss, $75000
$924500
2.2
1.2
(b). Paid accounts payable, $105000
$924500
2.4
1.2
(c). Purchased goods on account, $125000
$924500
2.0
1.0
(d). Paid notes payable, $105000
$924500
2.4
1.2
(e). Declared a cash dividends, $140000
$784500
1.9
0.9
(f). Declared a common stock dividend on common stock, $60000
$924500
2.2
1.2
(g). Borrowed cash from bank on long-term note, $225000
$1149500
2.5
1.5
(h). Received cash on account, $140000
$924500
2.2
1.2
(i). Issued additional shares of stock for cash, $575000
$1499500
2.9
1.9
(j). Paid cash for prepaid expenses, $15000
$924500
2.2
1.1
Explanation;
(a). Sold marketable securities at no gain or loss, $75000;
Working capital ($1694500 - $770000) = $924500
Current ratio ($1694500 / $770000) = 2.2
Quick ratio ($902500 / $770000) = 1.2
(b). Paid accounts payable, $105000;
Working capital ($1589500 - $665000) = $924500
Current ratio ($1589500 / $665000) = 2.4
Quick ratio ($797500 / $665000) = 1.199 OR 1.2
(c). Purchased goods on account, $125000;
Working capital ($1819500 - $895000) = $924500
Current ratio ($1819500 / $895000) = 2.03 or 2.0
Quick ratio ($902500 / $895000) = 1.199 OR 1.0
(d). Paid notes payable, $105000;
Working capital ($1589500 - $665000) = $924500
Current ratio ($1589500 / $665000) = 2.4
Quick ratio ($797500 / $665000) = 1.199 or 1.2
(e). Declared a cash dividends, $140000;
Working capital ($1694500 - $910000) = $784500
Current ratio ($1694500 / $910000) = 1.9
Quick ratio ($902500 / $910000) = 0.9
(f). Declared a common stock dividend on common stock, $60000;
Working capital ($1694500 - $770000) = $924500
Current ratio ($1694500 / $770000) = 2.2
Quick ratio ($902500 / $770000) = 1.2
(g). Borrowed cash from bank on long-term note, $225000;
Working capital ($1919500 - $770000) = $1149500
Current ratio ($1919500 / $770000) = 2.5
Quick ratio ($1127500 / $770000) = 1.5
(h). Received cash on account, $140000;
Working capital ($1694500 - $770000) = $924500
Current ratio ($1694500 / $770000) = 2.2
Quick ratio ($902500 / $770000) = 1.2
(i). Issued additional shares of stock for cash, $575000;
Working capital ($2269500 - $770000) = $1499500
Current ratio ($2269500 / $770000) = 2.9
Quick ratio ($1477500 / $770000) = 1.9
(j). Paid cash for prepaid expenses, $15000;
Working capital ($1694500 - $770000) = $924500
Current ratio ($1694500 / $770000) = 2.2
Quick ratio ($887500 / $770000) = 1.15 or 1.1
a. Working capital
$924500
b. Current ratio
2.2
c. Quick ratio
1.2
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