Chapter 11, Problem 11.12P

Problem 11.12

LO 1

Effect of transactions on liquidity measures Selected balance sheet accounts for Tibbetts Company on September 30, 2016, are as follows:

Cash	$ 48,000
Marketable securities	87,000
Accounts receivable, net	129,000
Inventory	135,000
Prepaid expenses	21.000
Total current assets	$420,000
Accounts payable	$147,000
Other accrued liabilities	33,000
Short-term debt	60.000
Total current liabilities	$240,000

Required:

1. Calculate the working capital, current ratio, and acid-test ratio for Tibbetts Company as of September 30, 2016.
2. Summarized here are the transactions/events that took place during the fiscal year ended September 30, 2017. Indicate the effect of each item on Tibbetts Company’s working capital, current ratio, and acid-test ratio. Use + for increase, - for decrease, and (NE) for no effect. (Hint: It may be helpful to use the horizontal model or to record the journal entry(ies)for each item

before considering the effects on liquidity measures.)
Transaction/Event	Working

CapitalCurrent

RatioAcid-Test

Ratio 0. Example: Paid accounts payable, $585,000. NE + +

1. Credit sales for the year amounted to $360,000. The cost of goods sold was $234,000.
2. Collected accounts receivable, $378,000.
3. Purchased inventory on account, $252,000.
4. Issued 250 shares of common stock for $54 per share.
5. Wrote off $10,500 of uncollectible accounts using the allowance for bad debts.
6. Declared and paid a cash dividend, $30,000.
7. Sold marketable securities costing $39,000 for $46,500 in cash.
8. Recorded insurance expense for the year, $ 18,000. The premium for the policy was paid in June 2016.
9. Borrowed cash on a short-term bank loan, $15,000.
10. Repaid principal of $60,000 and interest of $4,500 on a long-term bank loan.