Question

Effect on transactions on liquidity measures
Selected balance sheet accounts for Tibbets Company on September 30, 2019, are as follows:
		Cash	$48,000.00
		Marketable securities	87,000
		Accounts receivable, net	129,000
		Inventory	135,000
		Prepaid expenses	21,000
		total current assets	$420,000.00
		Accounts Payable	$147,000.00
		Other accrued liabilities	33,000
		Short-term debt	60,000
		total current liabilities	$240,000.00
Required:
a. Calculate the working capital, current ratio, and acid-test ratio for Tibbetts Company as of Sep 30,2019
b. Summarized here are the transactions/events that took place during the fiscal year ended Sep 30,2020.
Indicate the effect of each item on Tibbets Co's working capital, current ratio, and acid-test ratio.
Use + for increase , -- for decrease, and (NE) for no effect. [Hint: It may be helpful to use the horizontal model or to record the journal entry(ies) for each item before considering the effects on liquidity measures.]
Transaction/event	Working Capital	Current Ratio	Acid-Test Ratio
Example: Paid accounts payable, $585,000	NE	+	+
1. Credit sales for the year amounted to $360,000. The cost of goods sold was $234,000
2. Collected accouts receivable, $378,000.
3. Purchased inventory on account, $252,000.
4. Issued 250 shares of common stock fo $54 per share.
5. Wrote off $10,500 of uncollectible account ussing the allowance for bad debts.
6. Declared and paid a cash dividend, $30,000.
7. Sold marketable securities costing $39,000 for $46,500 in cash
8. Recorded insurance expense for the year, $18,000. The premium for the policy was paid in June 2019
9. Borrowed cash on a short-term bank loan, $15,000.
10. Repaid principal of $60,000 and interest of $4,500 on a long-term bank loan.

Answer 1

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