Selected amounts from Alex Company’s balance sheet from the beginning of the year follow: Cash P70,000 Marketable securities P12,000 Accounts receivable (net) 350,000 Inventory 460,000 Prepaid expenses 8,000 Plant and equipment (net) 950,000 Accounts payable 200,000 Accrued liabilities 60,000 Notes due within one year 100,000 Bonds payable in 5 years 140,000 During the year, the company completed the following transactions: Purchased inventory on account, P50,000 b. Declared cash dividends P30,000 Paid accounts payable P100,000 Collected cash on accounts receivable P80,000 e. Purchased equipment for cash P75,000 Paid a cash dividend previously declared P30,000 Borrowed cash on a short-term note with the bank P60,000 h. Sold inventory costing P70,000 for P100,000, on account Wrote off uncollectible accounts in the amount of P10,000. The company uses the allowance method of accounting for bad debts. Issued additional shares of capital stock for cash, P200,000 k. Paid off all short-term notes due P160,000 Required: Compute the following ratios as of the beginning of the year: Working capital, Current ratio and Acid-test ratio Indicate the effect of the transactions given above on working capital, current ratio and acid test ratio. Give the effect in terms of INCREASE, DECREASE or NONE.

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter9: Long-term Liabilities

Section: Chapter Questions

Problem 7MCQ

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Selected amounts from

Alex Company’s balance sheet from the beginning of the year follow:

Cash P70,000 Marketable securities P12,000

Accounts receivable (net) 350,000 Inventory 460,000

Prepaid expenses 8,000 Plant and equipment (net) 950,000

Accounts payable 200,000 Accrued liabilities 60,000

Notes due within one year 100,000 Bonds payable in 5 years 140,000

During the year, the company completed the following transactions:

Purchased inventory on account, P50,000 b. Declared cash dividends P30,000
Paid accounts payable P100,000
Collected cash on accounts receivable P80,000 e. Purchased equipment for cash P75,000
Paid a cash dividend previously declared P30,000
Borrowed cash on a short-term note with the bank P60,000 h. Sold inventory costing P70,000 for P100,000, on account
Wrote off uncollectible accounts in the amount of P10,000. The company uses the allowance method of accounting for bad debts.
Issued additional shares of capital stock for cash, P200,000 k. Paid off all short-term notes due P160,000

Required:

Compute the following ratios as of the beginning of the year: Working capital, Current ratio and Acid-test ratio
Indicate the effect of the transactions given above on working capital, current ratio and acid test ratio. Give the effect in terms of INCREASE, DECREASE or NONE.

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