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Exercise 1-38 Identifying Current Assets and Liabilities Dunn Sporting Goods sells athletic clothing and footwear 10 retail customers. Dunn’s accountant indicates that the firm’s operating cycle averages 6 months. At December 31, 2019, Dunn has the following assets and liabilities: Prepaid rent in the amount of 58,500. Dunn’s rent is $500 per month. A $9,700 account payable due in 45 days. Inventory in the amount of $46,230. Dunn expects to sell $38,000 of the inventory within 3 months. The remainder will be placed in storage until September 2020. The items placed in storage should be sold by November 2020. An investment in marketable securities in the amount of $1,900. Dunn expects to sell $700 of the marketable securities in 6 months. The remainder are not expected to be sold until 2022. Cash in the amount of $1,050. An equipment loan in the amount of $60,000 due in March 2024. Interest of $4,500 is due in March 2020 ($3,750 of the interest relates to 2019. with the remainder relating to the first 3 months of 2020). An account receivable from a local university in the amount of $2,850. The university has promised to pay the full amount in 3 months. Store equipment at a cost of $9,200. Accumulated depreciation has been recorded on the store equipment in the amount of 51,250. Required: Prepare the current asset and current liability portions of Dunn’s December 31, 20191 balance-sheet. Compute Dunn’s working capital and current ratio at December 31, 2019. CONCEPTUAL CONNECTION As in investor or creditor. what do these ratios tell you about Dunn’s liquidity?

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
Publisher: Cengage Learning
ISBN: 9781337690881
BuyFind

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
Publisher: Cengage Learning
ISBN: 9781337690881

Solutions

Chapter
Section
Chapter 1, Problem 38E
Textbook Problem

Exercise 1-38 Identifying Current Assets and Liabilities

Dunn Sporting Goods sells athletic clothing and footwear 10 retail customers. Dunn’s accountant indicates that the firm’s operating cycle averages 6 months. At December 31, 2019, Dunn has the following assets and liabilities:

  1. Prepaid rent in the amount of 58,500. Dunn’s rent is $500 per month.
  2. A $9,700 account payable due in 45 days.
  3. Inventory in the amount of $46,230. Dunn expects to sell $38,000 of the inventory within 3 months. The remainder will be placed in storage until September 2020. The items placed in storage should be sold by November 2020.
  4. An investment in marketable securities in the amount of $1,900. Dunn expects to sell $700 of the marketable securities in 6 months. The remainder are not expected to be sold until 2022.
  5. Cash in the amount of $1,050.
  6. An equipment loan in the amount of $60,000 due in March 2024. Interest of $4,500 is due in March 2020 ($3,750 of the interest relates to 2019. with the remainder relating to the first 3 months of 2020).
  7. An account receivable from a local university in the amount of $2,850. The university has promised to pay the full amount in 3 months.
  8. Store equipment at a cost of $9,200. Accumulated depreciation has been recorded on the store equipment in the amount of 51,250.

Required:

  1. Prepare the current asset and current liability portions of Dunn’s December 31, 20191 balance-sheet.
  2. Compute Dunn’s working capital and current ratio at December 31, 2019.
  3. CONCEPTUAL CONNECTION As in investor or creditor. what do these ratios tell you about Dunn’s liquidity?

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Chapter 1 Solutions

Cornerstones of Financial Accounting
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