In: Accounting
Data pertaining to the current position of Lucroy Industries Inc. follow:
Cash | $430,000 |
Marketable securities | 165,000 |
Accounts and notes receivable (net) | 325,000 |
Inventories | 700,000 |
Prepaid expenses | 44,000 |
Accounts payable | 230,000 |
Notes payable (short-term) | 230,000 |
Accrued expenses | 280,000 |
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 | $ |
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. 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, $65,000. | $ | ||||
b. Paid accounts payable, $105,000. | |||||
c. Purchased goods on account, $115,000. | |||||
d. Paid notes payable, $115,000. | |||||
e. Declared a cash dividend, $145,000. | |||||
f. Declared a common stock dividend on common stock, $40,000. | |||||
g. Borrowed cash from bank on a long-term note, $215,000. | |||||
h. Received cash on account, $125,000. | |||||
i. Issued additional shares of stock for cash, $615,000. | |||||
j. Paid cash for prepaid expenses, $9,000. |
(1).
a. Working capital |
$924000 |
b. Current ratio |
2.2 |
c. Quick ratio |
1.2 |
Explanation;
(a). Working capital = Current assets – Current liabilities
Working capital = $1664000 – $740000
= $924000
(b). Current ratio = Current assets / Current liabilities
Current ratio = $1664000 / $740000
= 2.2
(c). Quick ratio = Quick assets / Current liabilities
Quick ratio = $920000 / $740000
= 1.2
(2).
Transaction |
Working capital |
Current ratio |
Quick ratio |
(a). |
$924000 |
2.2 |
1.2 |
(b). |
$924000 |
$1559000 / $635000 = 2.4 |
$815000 / $635000 = 1.3 |
(c). |
$924000 |
$1779000 / $855000 = 2.1 |
$920000 / $855000 = 1.1 |
(d). |
$924000 |
$1549000 / $625000 = 2.5 |
$805000 / $625000 = 1.3 |
(e). |
$779000 |
$1664000 / $885000 = 1.9 |
$920000 / $885000 = 1.0 |
(f). |
$924000 |
$1664000 / $740000 = 2.2 |
$920000 / $740000 = 1.2 |
(g). |
$1139000 |
$1879000 / $740000 = 2.5 |
$1135000 / $740000 = 1.5 |
(h). |
$924000 |
$1664000 / $740000 = 2.2 |
$920000 / $740000 = 1.2 |
(i). |
$1539000 |
$2279000 / $740000 = 3.1 |
$1535000 / $740000 = 2.1 |
(j). |
$924000 |
$1664000 / $740000 = 2.2 |
$911000 / $740000 = 1.2 |