The Zett Company experiences the following unrelated events and transactions during Year 1. The company’s existing current ratio is 2:1 and its quick ratio is 1.2:1. 1. Zett wrote off $5,000 of accounts receivable as uncollectible. (Assumes a sufficient amount is provided for in the Allowance for Bad Debts.) 2. A bank notifies Zett that a customer’s check for $411 is returned marked insufficient funds. The customer is bankrupt. 3. The owners of Zett Company make an additional cash investment of $7,500. 4. Inventory costing $600 is judged obsolete when a physical inventory is taken. 5. Zett declares a $5,000 cash dividend to be paid during the first week of the next reporting period. 6. Zett purchases long-term investments for $10,000. 7. Accounts payable of $9,000 are paid. 8. Zett borrows $1,200 from a bank and gives a 90-day, 6% promissory note in exchange. 9. Zett sells a vacant lot for $20,000 that had been used in its operations. 10. A three-year insurance policy is purchased for $1,500. Separately evaluate the immediate effect of each transaction on the company’s: 1. Current ratio 2. Quick (acid-test) ratio 3. Working capital Explain the effects and show them in the table(increase/decrease or no change).
The Zett Company experiences the following unrelated events and transactions during Year 1. The company’s existing
1. Zett wrote off $5,000 of accounts receivable as uncollectible. (Assumes a sufficient amount is provided for in the Allowance for
2. A bank notifies Zett that a customer’s check for $411 is returned marked insufficient funds. The customer is bankrupt.
3. The owners of Zett Company make an additional cash investment of $7,500.
4. Inventory costing $600 is judged obsolete when a physical inventory is taken.
5. Zett declares a $5,000 cash dividend to be paid during the first week of the next reporting period.
6. Zett purchases long-term investments for $10,000.
7. Accounts payable of $9,000 are paid.
8. Zett borrows $1,200 from a bank and gives a 90-day, 6% promissory note in exchange.
9. Zett sells a vacant lot for $20,000 that had been used in its operations.
10. A three-year insurance policy is purchased for $1,500.
Separately evaluate the immediate effect of each transaction on the company’s:
1. Current ratio
2. Quick (acid-test) ratio
3.
Explain the effects and show them in the table(increase/decrease or no change).
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