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

Question

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

   

   

   

a. Working capital

b. Current ratio

c. Acid-test ratio

        

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.

  

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

Explanation / Answer

Answer:1

a. Working capital=Current asset-Current liability

=$872300-$327100

=$545200

b.Current ratio=Current asset/Current liability

=$872300/$327100

=2.67 times

c. Quick ratio=Quick asset/CL

=($872300-441800-6600)/$327100

=1.30 times

Current Assets: Cash 63000 Marketable Securities 27700 Accounts receivable,net 333200 Inventory 441800 Prepaid expenses 6600 Total current assets 872300 Current liabilities: Accounts payable 187400 Notes due in one year 86000 Accrued liabilities 53700 Total current liabilities 327100

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