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 liabilitiess $ 60,000 $ 28,600 $326,000 $ 434,000 $ 6,000 $ 182,000 $ 80,000 $ 51,000 During the year, Denna Company completed the following transactions x. Paid a cash dividend previously declared, $20,000 a. Issued additional shares of common stock for cash, $180,000 b. Sold inventory costing $62,000 for $90,000, on account. C. Wrote off uncollectible accounts in the amount of $6,000, reducing the accounts receivable balance accordingly d. Declared a cash dividend, $20,000 e. Paid accounts payable, $84,000 f. Borrowed cash on a short-term note with the bank, $45,000 g. Sold inventory costing $20,460 for $13,640 cash h. Purchased inventory on account, $42,500 i. Paid off all short-term notes due, $125.000 j. Purchased equipment for cash, $67,000 k. Sold marketable securities costing $18,600 for cash, $15,500 I. Collected cash on accounts receivable, $69,000 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

a) Calculation of ratios

current assets - 60,000+28600+326000+434000+6000=$854600

current liabilities - 182000+80000+51000=$313000

Working Capital = current assets - current liabilities = $854600-$313000 = $541600

Current Ratio = current assets/current liabilities = $854600/$313000 = 2.73

Acid Test Ratio = (Total Current Assets - Inventory - Prepaid Expenses)/Current Liabilties

= (854600 - 434000-6000)/313000 = 414600/313000 = 1.3246

b) Computaion of effect of each transaction:-

Transaction Working Capial Current Ratio Acid Test Ratio 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 Decrease Increase h None None Decrease i None None None j Decrease Decrease Decrease k Decrease Decrease Decrease l None None None

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.