Effect of Transactions on Working Capital, Current Ratio, and Quick Ratio The fo
ID: 2748589 • Letter: E
Question
Effect of Transactions on Working Capital, Current Ratio, and Quick Ratio
The following account balances are taken from the records of Redon Corp.:
Required:
1. Use the information provided to compute the amount of working capital and Redon's current and quick ratios (round to three decimal points). Use the minus sign to indicate a negative working capital.
2. Determine the effect that each of the following transactions will have on Redon's working capital, current ratio, and quick ratio by recalculating each and then indicating whether the measure is increased, decreased, or not affected by the transaction. Consider each transaction independently; that is, assume that it is the only transaction that takes place.
Use the minus sign to indicate a negative working capital for amounts in column one. For the ratios, round to three decimal places and enter amounts as positive numbers. If an amount is zero, enter "0"
Cash $69,000 Short-term investments 60,000 Accounts receivable 73,000 Inventory 100,000 Prepaid insurance 10,000 Accounts payable 75,000 Taxes payable 25,000 Salaries and wages payable 40,000 Short-term loans payable 210,000Explanation / Answer
Current Assets = Cash + short term investment + Account receivables + Inventory + prepaid insurance
Current Assets = 69000 + 60000 + 73000 + 100000 + 10000 = 312000
Current Liabilities = Account payables + tax payables + salaries and wages payable + short term loan payable
Current liabilities = 75000 + 25000 + 40000 + 210000 = 350000
Working capital = Current Assets – Current liabilities
= 312000 – 350000 = -38000
Current ratio = Current Assets / Current Liabilities
= 312000 / 350000 = 0.89
Quick ratio = (current Assets – Inventories) / current liabilities
= ( 312000 – 100000) / 350000 = 0.61
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.