Denna Company’s working capital accounts at the beginning of the year follow: Co

Question

Denna Company’s working capital accounts at the beginning of the year follow:

   

Collected cash on accounts receivable, $70,100.

Working Capital - 542800

Current ratio- 2.71

Acid-test Ratio- 1.33

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.

  Cash $ 61,000       Marketable securities $ 28,300       Accounts receivable, net $ 328,400       Inventory $ 436,600       Prepaid expenses $ 6,200       Accounts payable $ 183,800   Notes due within one year $ 82,000       Accrued liabilities $ 51,900

Explanation / Answer

Transaction Working Capital Current Ratio Acid-test Ratio X none increase increase A Increase Increase Increase B Increase Increase Increase C Decrease Decrease Decrease D Decrease Decrease Decrease E None None None F None None None G Decrease Increase Increase H None None Decrease I None None None J Decrease Decrease Decrease K Decrease Decrease Decrease L None None None

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