Exercise 14-6 Keener Incorporated had the following transactions occur involving

Question

Exercise 14-6

Keener Incorporated had the following transactions occur involving current assets and current liabilities during February 2017.

Feb. 3 Accounts receivable of $15,200 are collected.

Feb. 7 Equipment is purchased for $28,400 cash.

Feb. 11 Paid $2,000 for a 3-year insurance policy.

Feb. 14 Accounts payable of $12,500 are paid.

Feb. 18 Cash dividends of $4,000 are declared.

Additional information:

1. As of February 1, 2017, current assets were $135,000, and current liabilities were $50,300.

2. As of February 1, 2017, current assets included $14,800 of inventory and $1,800 of prepaid expenses.

(a) Compute the current ratio as of the beginning of the month and after each transaction.

(b) Compute the acid-test ratio as of the beginning of the month and after each transaction.

(Round answers to 1 decimal place, e.g. 1.6.)

Current ratio

February 1                ? :1

February 3                ? :1

February 7                ? :1

February 11              ? :1

February 14              ? :1

February 18              ? :1

Acid-test ratio

February 1                 ? :1

February 3                 ? :1

February 7                 ? :1

February 11               ? :1

February 14               ? :1

February 18               ? :1

Explanation / Answer

Note; Current ratio = Current assets / Current liabilities

Acid test ratio = Current assets- inventory - prepaid expenses / Current liabilities

Date Transaction Current ratio Acid test ratio Feb 1 2017 - 2.68 2.35 Feb 3 Accounts receivable collected 2.68 2.35 Feb 7 Equipment purchased for cash 2.12 1.79 Feb 11 Paid for an insurance policy 2.08 1.75 Feb 14 Accounts payable paid 2.44 1.99 Feb 18 Cash dividends declared 2.44 1.99

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