Denna Company\'s working capital accounts at the beginning of the year follow: C

Question

Denna Company's working capital accounts at the beginning of the year follow: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Accounts payable Notes due within one year Accrued liabilities $ 79,000 $ 23,800 $ 371,600 $483,400 $ 14,300 216,200 $ 118,000 $ 68,100 During the year, Denna Company completed the following transactions: x. Paid a cash dividend previously declared, $39,000. a. Issued additional shares of common stock for cash, $218,000. b. Sold inventory costing $77,200 for $109,000, on account. c. Wrote off uncollectible accounts in the amount of $13,600, reducing the accounts receivable balance accordingly d. Declared a cash dividend, $39,000. e. Paid accounts payable, $114,400 f. Borrowed cash on a short-term note with the bank, $73,500 g. Sold inventory costing $17,100 for $11,400 cash. h. Purchased inventory on account, $56,750 i. Paid off all short-term notes due, $191,500 j. Purchased equipment for cash, $82,200. k. Sold marketable securities costing $13,800 for cash, $11,500. l. Collected cash on accounts receivable, $89,900 Required 1. Compute the following amounts and ratios as of the beginning of the year: (Round your ratios to 2 decimal places.) a. Working capital b. Current ratio c. Acid-test ratio

Explanation / Answer

Working Capital = Current Assets - Current Liabilities Current ratio = Current Assets/Current Liabilities Acid-test ratio = (Current Assets - Inventory - Prepaid Expenses)/ Current liabilities Given Data Cash      79,000 Marketeable securities      23,800 Accounts Receivable, net 3,71,600 Inventory 4,83,400 Prepaid Expenses      14,300 Current Assets 9,72,100 Accounts payable 2,16,200 Notes due within one year 1,18,000 Accrued Liabilities      68,100 Current Liabilities 4,02,300 Requirement 1-a Working Capital = 972,100 -402,300 Working Capital = 569,800 Requirement 1-b Current ratio = 972,100/402,300 Current ratio = 2.42 Requirement 1-c Acid-test ratio = (972,100 - 483,400 - 14,300)/ 402,300 Acid-test ratio = 1.18 The Effect on Transaction Working Capital Current Ratio Acid- Test Ratio x. Paid a cash dividend previously declared None Increase Increase a Issue capital stock for cash Increase Increase Increase b Sold Inventory at a gain None Increase Increase c Wrote off uncollectible accounts Increase Increase Increase d Declared a cash dividend Decrease Decrease Decrease e Paid accounts payable None Increase Increase f Borrowed on a short term note None Decrease Decrease g Sold Invetory at a loss Decrease Decrease Increase h Purchased inventory on account None Decrease Decrease i Paid short term notes due None Increase Increase j Purchased equipment for cash Decrease Decrease Decrease k Sold marketable securities at a loss Decrease Decrease Decrease l Collected accounts receivable None None None

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