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

Question

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

   

   

   

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.

What I currently have:

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

The Effect on Current Ratio Acid-Test Ratio Transaction x. Paid a cash dividend previously declaredNone a. Issued capital stock for cash b. Sold inventory at a gain c. Wrote off uncollectible accounts d. Declared a cash dividend e. Paid accounts payable f. Borrowed on a short-term note g. Sold inventory at a loss h. Purchased inventory on account i. Paid short-term notes due j. Purchased equipment for cash k. Sold marketable securities at a loss I. Collected accounts receivable Working Capital Increase Increase

Explanation / Answer

EFFECT ON TRANSACTIONS WORKING CURRENT ACID-TEST CAPITAL RATIO RATIO x. cash dividend paid previously declared None Increase Increase a Issue Capital Stock in cash Increase Increase Increase b. Sold inventory ata gain Increase Increase Increase c Wrote off Uncollectible accounts None None None d Declared a cash dividend Decrease Decrease Decrease e Paid Accounts payable None Increase Increase f Borrowed a short term note NOne Decrease Decrease g Sold Inventory at loss Decrease Decrease Decrease h Purchase inventory on account None Decrease Decrease i paid all short term dues None Increase Increase j Purchased Equipment for cash Decrease Decrease Decrease k Sold marketable securities at a loss Decrease Decrease Decrease l Collected cash on accounts receivable None None None

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