Question

Data pertaining to the current position of Forte Company follow:

Cash $427,500

Marketable securities 172,500

Accounts and notes receivable (net) 335,000

Inventories 700,000

Prepaid expenses 48,000

Accounts payable 210,000

Notes payable (short-term) 255,000

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, 50,000.

B. Paid accounts payable, 130,000.

C. Purchased goods on account, 120,000.

D. Paid notes payable, 100,000.

E. Declared a cash dividend, 150,000.

F. Declared a common stock dividend on common stock, 30,000.

G. Borrowed cash from bank on a long-term note, 205,000.

H. Received cash on account, 130,000.

I. Issued additional shares of stock for cash, 590,000.

J. Paid cash for prepaid expenses, 12,000.

1. Compute the following. Round ratios to one decimal place A. Working capital: B. Current ratio: C. Quick ratio: X Final Question 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

1 A

Working Capital Current Assets - Current Liabilities Current Assets Cash        427,500.00 Accounts and note receivable        335,000.00 Inventories        700,000.00 Marketable Securities        172,500.00 Prepaid Expenses          48,000.00    1,683,000.00 Current Liabilities Accounts Payable        210,000.00 Notes Payable        255,000.00 Accrued Expenses        300,000.00        765,000.00 Working Capital        918,000.00
Working Working Capital Current Ratio   Quick Ratio A Cash                          477,500.00                                                   968,000.00                  2.040 1.062 B Cash 427500-130000=297500                                                   918,000.00                  2.446              1.268 Accounts Payable 210000-130000=80000 C Inventories 700000+120000=820000                                                   918,000.00                  2.037 1.056 Accounts Payable 210000+120000=330000 D Cash 427500-100000=327500                                                   918,000.00                  2.380                 1.26 Notes Payable 255000-100000=155000

B Current Ratio= Current Assets/Current Liabilities

=1683000/765000= 2.2

c Quick Ratio=(Cash + Marketable Securities + Accounts Receivable) / Current Liabilities

=(427500+172500+335000)/765000

=1.22