Question

Data pertaining to the current position of Forte Company follow:

Cash	$400,000
Marketable securities	162,500
Accounts and notes receivable (net)	325,000
Inventories	750,000
Prepaid expenses	46,000
Accounts payable	230,000
Notes payable (short-term)	260,000
Accrued expenses	295,000

Required:

1.

Compute (A) the working capital, (B) the current ratio, and (C) the quick ratio. Round ratios to one decimal place.

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 of the table provided. Consider each transaction separately and assume that only that transaction affects the data given. Round ratios to one decimal place. A. Sold marketable securities at no gain or loss, $70,000. B. Paid accounts payable, $140,000. C. Purchased goods on account, $115,000. D. Paid notes payable, $115,000. E. Declared a cash dividend, $150,000. F. Declared a common stock dividend on common stock, $50,000. G. Borrowed cash from bank on a long-term note, $210,000. H. Received cash on account, $115,000. I. Issued additional shares of stock for cash, $630,000. J. Paid cash for prepaid expenses, $8,000.

1.	Compute the following. 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 of the table provided. Consider each transaction separately and assume that only that transaction affects the data given. Round ratios to one decimal place.

	Working	Current	Quick
Transaction	Capital	Ratio	Ratio
A.
B.
C.
D.
E.
F.
G.
H.
I.
J.

Answer 1

1.
A. Working Capital = Current Assets - Current Liabilities
= ($400000+162500+325000+750000+46000) - (230000+260000+295000) = $898500

B. Current Ratio = Current Assets / Current Liabilities
= ($400000+162500+325000+750000+46000) / (230000+260000+295000) = 2.1

C. Quick Ratio = (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities
= ($400000+162500+325000) / (230000+260000+295000) = 1.1

2.

		Working Capital	Current Ratio	Quick Ratio
A.	Sold marketable securities at no gain or loss, $70,000.	$        898,500	2.1	1.1
B.	Paid accounts payable, $140,000.	$        898,500	2.4	1.2
C.	Purchased goods on account, $115,000.	$        898,500	2	1
D.	Paid notes payable, $115,000.	$        898,500	2.3	1.2
E.	Declared a cash dividend, $150,000.	$        748,500	1.8	0.9
F.	Declared a common stock dividend on common stock, $50,000.	$        898,500	2.1	1.1
G.	Borrowed cash from bank on a long-term note, $210,000.	$    1,108,500	2.4	1.4
H.	Received cash on account, $115,000.	$        898,500	2.1	1.1
I.	Issued additional shares of stock for cash, $630,000.	$    1,528,500	2.9	1.9
J.	Paid cash for prepaid expenses, $8,000.	$        898,500	2.1	1.1