Question

In its most recent annual report, Appalachian Beverages reported current assets of $39,100 and a current ratio of 1.70. Assume that the following transactions were completed: (1) purchased merchandise for $5,300 on account and (2) purchased a delivery truck for $10,000, paying $3,000 cash and signing a two-year promissory note for the balance. Required: Compute the updated current ratio after each transaction, by showing the cumulative effects of the transactions in the following table. (Round your answers to 2 decimal places.)

Answer 1

• All working forms part of the answer

Transaction	Current Assets		Current Liability		Current Ratio	Explanation (if any required)
	Beginning balance	$                        39,100	Beginning balance	$                23,000	1.70	[Current Liability = Current Assets / Current ratio: 39100/1.70 = 23000]
#1 Merchandise purchased	Inventory [would increase]	$                          5,300	Accounts Payable [would increase]	$                   5,300
	Cumulative balance for ratio	$                        44,400		$                28,300	1.57	[Current Assets / Current Liability = Current Ratio]
#2 Delivery truck purchased	Cash [would decrease]	$                        (3,000)	No effect on Current Liability	$                          -		[Transaction involve increase of Equipment account (not current asset), decrease of Cash (Current Asset) and Increase of Long Term Liability (not current liability)
	Cumulative balance for ratio	$                        41,400		$                28,300	1.46	[Current Assets / Current Liability = Current Ratio]