Current assets for Mayfair Corporation totaled $410,000 and the current ratio wa

Question

Current assets for Mayfair Corporation totaled $410,000 and the current ratio was 2.0. Assume that the following transactions were completed: (1) sold $11,000 in merchandise on short-term credit, (2) declared but did not pay dividends of $50,000, (3) paid prepaid rent in the amount of $12,000, (4) paid previously declared dividends in the amount of $50,000, (5) collected an account receivable in the amount of $11,000, and (6) reclassified $45,000 of long-term debt as a short-term liability.

Current assets for Mayfair Corporation totaled $410,000 and the current ratio was 2.0. Assume that the following transactions were completed: (1) sold $11,000 in merchandise on short-term credit, (2) declared but did not pay dividends of $50,000, (3) paid prepaid rent in the amount of $12,000, (4) paid previously declared dividends in the amount of $50,000, (5) collected an account receivable in the amount of $11,000, and (6) reclassified $45,000 of long-term debt as a short-term liability.

Explanation / Answer

Current Assets             410,000.00 Current Ratio                          2.00 Current Liab= Current Assets/Current Ratio = 410000/2             205,000.00 Statement showing computations Transactions Current Assets Current Liab Current Ratio =CA/CL Comments             410,000.00           205,000.00                                       2.00 (1) sold $11,000 in merchandise on short-term credit,             410,000.00           205,000.00                                       2.00 AR will inc and inv will dec by Same amt (2) declared but did not pay dividends of $50,000,             410,000.00           255,000.00                                       1.61 Current Liab will inc by 50,000 as div becomes payable (3) paid prepaid rent in the amount of $12,000,               410,000.00           255,000.00                                       1.61 prepaid rent will inc and cash will dec by same amount (4) paid previously declared dividends in the amount of $50,000,               360,000.00           205,000.00                                       1.76 Cash and div payable will dec by same amount (5) collected an account receivable in the amount of $11,000,             360,000.00           205,000.00                                       1.76 AR will dec and cash will inc by same amount (6) reclassified $45,000 of long-term debt as a short-term liability.             360,000.00           250,000.00                                       1.44 since cl will inc by 45000

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