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Financial Accounting

15th Edition
Carl Warren + 2 others
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
ISBN: 9781337272124
Textbook Problem
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Effect of transactions on current position analysis

Data pertaining to the current position of Forte Company follow:

Chapter 17, Problem 3PA, Effect of transactions on current position analysis Data pertaining to the current position of Forte , example  1

Instructions

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

2. List the following captions on a sheet of paper:

Chapter 17, Problem 3PA, Effect of transactions on current position analysis Data pertaining to the current position of Forte , example  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 to one decimal place.

  1. a. Sold marketable securities at no gain or loss, $70,000.
  2. b. Paid accounts payable, $125,000.
  3. c. Purchased goods on account, $110,000.
  4. d. Paid notes payable, $100,000.
  5. e. Declared a cash dividend, $150,000.
  6. f. Declared a common stock dividend on common stock, $50,000.
  7. g. Borrowed cash from bank on a long-term note, $225,000.
  8. h. Received cash on account, $125,000.
  9. i. Issued additional shares of stock for cash, $600,000.
  10. j. Paid cash for prepaid expenses, $10,000.

1) (a)

To determine

Compute working capital.

Explanation

Financial Ratios: Financial ratios are the metrics used to evaluate the liquidity, capabilities, profitability, and overall performance of a company.

Compute working capital.

Current ratio=Current assetsCurrent liabilities$1,650,000 – �

b)

To determine

Compute Current ratio.

c)

To determine

Calculate Acid-test ratio.

2.

To determine

Compute Working capital, Current ratio, and Quick ratio considering the given transactions.

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