Answered: Effect of Transactions on Current…

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter12: Fainancial Statement Analysis

Section: Chapter Questions

Problem 78E

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Effect of Transactions on Current Position Analysis

Data pertaining to the current position of Lucroy Industries Inc. follows:

Cash	$800,000
Marketable securities	550,000
Accounts and notes receivable (net)	850,000
Inventories	700,000
Prepaid expenses	300,000
Accounts payable	1,200,000
Notes payable (short-term)	700,000
Accrued expenses	100,000

Required:

1. Compute (a) the working capital, (b) the current ratio, and (c) the quick ratio. Round ratios to one decimal place.

a. Working capital	$
b. Current ratio
c. Quick ratio

2. Compute the working capital, the current ratio, and the quick ratio after each of the following transactions and record the results in the appropriate columns. Consider each transaction separately and assume that only that transaction affects the data given. Round ratios to one decimal place.

Transaction		Working Capital	Current Ratio	Quick Ratio
a. Sold marketable securities at no gain or loss, $500,000.	$
b. Paid accounts payable, $287,500.	$
c. Purchased goods on account, $400,000.	$
d. Paid notes payable, $125,000.	$
e. Declared a cash dividend, $325,000.	$
f. Declared a common stock dividend on common stock, $150,000.	$
g. Borrowed cash from bank on a long-term note, $1,000,000.	$
h. Received cash on account, $75,000.	$
i. Issued additional shares of stock for cash, $2,000,000.	$
j. Paid cash for prepaid expenses, $200,000.	$

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