l Verizon LTE * 51% 5:41 PM ezto.mheducation.com Selected amounts from Reingold

Question

l Verizon LTE * 51% 5:41 PM ezto.mheducation.com Selected amounts from Reingold Company's balance sheet from the beginning of the year follow During the year, the company completed the following transactions Purchased inventory on account, $53,750 Declared a cash dividend, $35,000 Paid accounts payable, $108,000 e Collected cash on accounts receivable, $85,500 e Purchased equipment for cash, $79,000 Paid a cash dividend previously declared, $35,000 Borrowed cash on a short-term note with the bank, $67 500 s Sold inventory costing $74,000 for $105,000, on account Wrote off uncollectible accounts in the amount of $12,000 reducing the accounts receivable balance accordingy. Sold marketable securities costing $14,500 for cash, $11,000. i Issued additional shares of common stock for cash, $210,000. Paid ofall short-term notes due, $177,500 Required: , Compute the following amounts and ratios as of the beginning of the year Working capital. bCurrent ratio. (Round your answer to 2 decimal places.) c. Acid-test ratio. (Round your answer to 2 decimal places.) 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

Explanation / Answer

1. Ratios as of the beginning of the year is as computed below:

2. Effect of each transaction on ratios is:

Particulars Amount ($) Current Assets: Cash $75,000 Marketable securities $54,500 Account Receivbale Net $362,000 Inventory $473,000 Prepaid Expenses $11,500 Total current assets (a) $976,000 Current Liabilities Accounts payables $209,000 Accrued liabilities $64,500 Notes due within one year $110,000 Total current liabilities (b) $383,500 Working capital (a-b) $592,500 Particulars Amount ($) Current Assets: Cash $75,000 Marketable securities $54,500 Account Receivbale Net $362,000 Total current assets (a) $491,500 Current Liabilities Accounts payables $209,000 Accrued liabilities $64,500 Notes due within one year $110,000 Total current liabilities (b) $383,500 Acid test ratio (a/b) $ 1.28 Particulars Amount ($) Current Assets: Cash $75,000 Marketable securities $54,500 Account Receivbale Net $362,000 Inventory $473,000 Prepaid Expenses $11,500 Total current assets (a) $976,000 Current Liabilities Accounts payables $209,000 Accrued liabilities $64,500 Notes due within one year $110,000 Total current liabilities (b) $383,500 Current Ratio (a/b) $ 2.54

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