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23 Nov 2019

6) if the current ratio increases from one year to the next, itdoes not necessarily follow that the amount of working capital willalso increase.

a_true

b)false

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23 Nov 2019
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PROBLEM 15-14 Effects of Transactions on Various Ratios (L015-2] Denna Company's working capital accounts at the beginning of the year follow: Cash ....... Marketable securities ...... Accounts receivable, net .... Inventory .................... Prepaid expenses .............. Accounts payable ............ Notes due within one year ....... Accrued liabilities ... $50,000 $30,000 $200,000 $210,000 $10,000 $150,000 $30,000 $20,000 During the year, Denna Company completed the following transactions: X. Paid a cash dividend previously declared, $12,000. a. Issued additional shares of common stock for cash, $100,000. b. Sold inventory costing $50,000 for $80,000, on account. c. Wrote off uncollectible accounts in the amount of $10,000, reducing the accounts receivable balance accordingly. d. Declared a cash dividend, $15,000. e. Paid accounts payable, $50,000. f. Borrowed cash on a short-term note with the bank, $35,000. g. Sold inventory costing $15,000 for $10,000 cash. h. Purchased inventory on account, $60,000. i. Paid off all short-term notes due, $30,000. j. Purchased equipment for cash, $15,000. k. Sold marketable securities costing $18,000 for cash, $15,000. 1. Collected cash on accounts receivable, $80,000. Required: 1. Compute the following amounts and ratios as of the beginning of the year: a. Working capital. b. Current ratio. c. Acid-test ratio. 2. Indicate the effect of each of the transactions given above on working capital, the current ratio, and the acid-test ratio. Give the effect in terms of increase, decrease, or none. Item (x) is given below as an example of the format to use: The Effect on Working Capital Current Ratio Acid-Test Ratio Transaction (x) Paid a cash dividend previously declared ........ None Increase Increase

Current Position Analysis

The following data were taken from the balance sheet of Bock Suppliers Company:

Current Year Previous Year
Cash $376,200 $273,600
Temporary investments 435,600 307,800
Accounts and notes receivable (net) 178,200 102,600
Inventories 914,800 625,900
Prepaid expenses 471,200 400,100
Total current assets $2,376,000 $1,710,000
Accounts and notes payable
(short-term) $382,800 $399,000
Accrued liabilities 277,200 171,000
Total current liabilities $660,000 $570,000

a. Determine for each year (1) the working capital, (2) the current ratio, and (3) the quick ratio. Round ratios to one decimal place.

Current Year Previous Year
1. Working capital $ $
2. Current ratio
3. Quick ratio

b. The liquidity of Bock Suppliers has from the preceding year to the current year. The working capital, current ratio, and quick ratio have all . Most of these changes are the result of an in current assets relative to current liabilities.

The following data were taken from the balance sheet of Nilo Company at the end of two recent fiscal years:

Current Year Previous Year
Current assets:
Cash $297,200 $224,000
Marketable securities 344,100 252,000
Accounts and notes receivable (net) 140,700 84,000
Inventories 880,400 658,800
Prepaid expenses 453,600 421,200
Total current assets $2,116,000 $1,640,000
Current liabilities:
Accounts and notes payable
(short-term) $266,800 $280,000
Accrued liabilities 193,200 120,000
Total current liabilities $460,000 $400,000

a. Determine for each year (1) the working capital, (2) the current ratio, and (3) the quick ratio. Round ratios to one decimal place.

Current Year Previous Year
1. Working capital $ $
2. Current ratio
3. Quick ratio

b. The liquidity of Nilo has from the preceding year to the current year. The working capital, current ratio, and quick ratio have all . Most of these changes are the result of an in current assets relative to current liabilities.

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