Question

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

Cash	$417,500
Marketable securities	182,500
Accounts and notes receivable (net)	340,000
Inventories	750,000
Prepaid expenses	48,000
Accounts payable	190,000
Notes payable (short-term)	240,000
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.

a. Working capital	$1,013,000
b. Current ratio	2.4
c. Quick ratio	1.3

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, $80,000.	$1,013,000				1.3
b. Paid accounts payable, $125,000.	1,013,000
c. Purchased goods on account, $125,000.	1,013,000
d. Paid notes payable, $110,000.	1,013,000
e. Declared a cash dividend, $135,000.
f. Declared a common stock dividend on common stock, $45,000.
g. Borrowed cash from bank on a long-term note, $225,000.
h. Received cash on account, $110,000.	1,013,000				1.3
i. Issued additional shares of stock for cash, $580,000.
j. Paid cash for prepaid expenses, $11,000.	1,013,000

Answer 1

1)	a. Working capital = 1738000-725000 =	1013000
	b. Current ratio = 1738000/725000 =	2.4
	c. Quick ratio = (417500+182500+340000)/725000 =	1.3
	CURRENT ASSETS:
	Cash	417500
	Marketable securities	182500
	Accounts and notes receivable (net)	340000
	Inventories	750000
	Prepaid expenses	48000
	Total current assets	1738000
	CURRENT LIABILITIES:
	Accounts payable	190000
	Notes payable (short term)	240000
	Accrued expenses	295000
	Total current liabilities	725000
2)	Transaction	Current Assets	Quick Assets	Current liabilities	Working Capital	Current Ratio	Quick Ratio
	a. Sold marketable securities at no gain or loss, $80,000.	1738000	940000	725000	1013000	2.4	1.3
	b. Paid accounts payable, $125,000.	16,13,000	815000	600000	1013000	2.7	1.4
	c. Purchased goods on account, $125,000.	18,63,000	940000	850000	1013000	2.2	1.1
	d. Paid notes payable, $110,000.	16,28,000	830000	615000	1013000	2.6	1.3
	e. Declared a cash dividend, $135,000.	1738000	940000	860000	878000	2.0	1.1
	f. Declared a common stock dividend on common stock, $45,000.	1738000	940000	725000	1013000	2.4	1.3
	g. Borrowed cash from bank on a long-term note, $225,000.	1963000	1165000	725000	1238000	2.7	1.6
	h. Received cash on account, $110,000.	17,38,000	940000	725000	1013000	2.4	1.3
	i. Issued additional shares of stock for cash, $580,000.	2318000	1520000	725000	1593000	3.2	2.1
	j. Paid cash for prepaid expenses, $11,000.	17,38,000	929000	725000	1013000	2.4	1.3