Question

Data pertaining to the current position of Forte Company follow:

Cash	$412,500
Marketable securities	187,500
Accounts and notes receivable (net)	300,000
Inventories	700,000
Prepaid expenses	50,000
Accounts payable	200,000
Notes payable (short-term)	250,000
Accrued expenses	300,000

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 to one decimal place. A. Sold marketable securities at no gain or loss, $70,000. B. Paid accounts payable, $125,000. C. Purchased goods on account, $110,000. D. Paid notes payable, $100,000. 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, $225,000. H. Received cash on account, $125,000. I. Issued additional shares of stock for cash, $600,000. J. Paid cash for prepaid expenses, $10,000. 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 to one decimal place. Working Current Quick Transaction Capital Ratio Ratio A. B. C. D. E. F. G. H. I. J.

Answer 1

		Particulars		Amount($)
	1	Current Assets
		Cash		412500
		Marketable Securities		187500
		Accounts and Notes Receivable(net)		300000
		Inventories		700000
		Prepaid Expenses		50000
				1650000
		Current Liabilities
		Accounts Payables		200000
		Notes Payable(Short term)		250000
		Accrued Expenses		300000
				750000
	a)	Working Capital	=	Current Assets - Current Liabilities
			=	1650000-750000
			=	900000
	b)	Current Ratio	=	Current Assets/Current Liabilities
			=	1650000/750000
			=	2.2
	c)	Quick Ratio	=	(Current Assets-Inventory)/Current Liabilities
			=	(1650000-700000)/750000
			=	1.3
	2
		Cash
	Add	Balance	412500
		Marketable Securities	70000
		Long Term Note	225000
		Accounts Receivable	125000
		equity	600000
	Less:	Accounts Payable	125000
		Notes Payable	100000
		Prepaid Expenses	10000
			1197500
		Marketable Securities
		Balance	187500
	Less	Sold during the period	70000
			117500
		Accounts Payable
		Balance	200000
	Less	Cash	125000
	Add	Purchases	110000
			185000
		Accounts Receivable
		Balance	300000
	Less:	Cash Received During the Period	125000
			175000
		Notes Payable
		Balance	250000
	Less	Cash	100000
			150000
		Prepaid Expenses
		Balance	50000
	Add	Paid during the period	10000
			60000
		Inventories
		Balance	700000
	Add	Purchases	100000
			800000
		Current Assets
		Cash	1197500
		Marketable Securities	117500
		Accounts and Notes Receivable(net)	175000
		Inventories	800000
		Prepaid Expenses	60000
			2350000
		Current Liabilities
		Accounts Payables	185000
		Notes Payable(Short term)	150000
		Accrued Expenses	300000
		Dividend Payable	200000
			835000
	a)	Working Capital	=	Current Assets - Current Liabilities
			=	2350000-835000
			=	1515000
	b)	Current Ratio	=	Current Assets/Current Liabilities
			=	2350000/835000
			=	2.8
	c)	Quick Ratio	=	(Current Assets-Inventory)/Current Liabilities
			=	(2350000-800000)/835000
			=	1.9
2		Transaction		Working Capital	Current Ratio	Quick ratio
	A	Current assets	1650000
	Less	Marketable Securities	70000
	Add	Cash	70000
			1650000
				900000	2.2	1.3
	B	Current Liabilities	750000
	Less	Accounts Payable	125000
			625000
		Current Assets	1650000
	Less:	Cash	125000
			1525000
				900000	2.4	1.1
	C	Current Liabilities	750000
	Add	Purchased goods on account	110000
			860000
		Current Assets	1650000
	Add	Inventory	110000
			1760000
				900000	2.0	1.1
	D	Current Liabilities	750000
	Less	Notes Payable	100000
			650000
		Current Assets	1650000
	Less	Cash	100000
			1550000
				900000	2.4	1.3
	E	Current Liabilities	750000
	Add	Dividend Payable	150000
			900000
		Current Assets	1650000
				750000	1.8	1.1
	F	Current Liabilities	750000
	Add	Dividend Payable	50000
			800000
		Current Assets	1650000
				850000	2.1	1.2
	G	Current Liabilities	750000
		Current Assets	1650000
	Add:	Cash	225000
			1875000
				1125000	2.5	1.6
	H	Current Liabilities	750000
		Current Assets	1650000
	Add	Cash	125000
	Less	Accounts Receivable	125000
			1650000
				900000	2.2	1.3
	I	Current Liabilities	750000
		Current Assets	1650000
	Add	Cash	600000
			2250000
				1500000	3	2.1
	J	Current Liabilities	750000
		Current Assets	1650000
	Less	Cash	10000
	Add	Prepaid Expense	10000
			1650000
				900000	2.2	1.3