Question

Plum Corporation began the month of May with $800,000 of current assets, a current ratio of 2.00:1, and an acid-test ratio of 1.30:1. During the month, it completed the following transactions (the company uses a perpetual inventory system).

May		2		Purchased $75,000 of merchandise inventory on credit.
		8		Sold merchandise inventory that cost $65,000 for $145,000 cash.
		10		Collected $30,000 cash on an account receivable.
		15		Paid $27,500 cash to settle an account payable.
		17		Wrote off a $5,000 bad debt against the Allowance for Doubtful Accounts account.
		22		Declared a $1 per share cash dividend on its 56,000 shares of outstanding common stock.
		26		Paid the dividend declared on May 22.
		27		Borrowed $95,000 cash by giving the bank a 30-day, 10% note.
		28		Borrowed $105,000 cash by signing a long-term secured note.
		29		Used the $200,000 cash proceeds from the notes to buy new machinery.

Required:
Complete the table below showing Plum's (1) current ratio, (2) acid-test ratio, and (3) working capital after each transaction. (Do not round intermediate calculations. Round your ratios to 2 decimal places and the working capitals to nearest dollar amount. Subtracted amount should be indicated with a minus sign.)

	Transaction Current Assets Quick Assets Current Liabilities Current Ratio Acid-Test Ratio Working Capital Beginning $800,000 $520,000 $400,000 2.00 1.30 $400,000 May 2 Balance 800,000 400,000 May 8 Balance May 10 Balance May 15 Balance May 17 Balance May 22 Balance May 26 Balance May 27 Balance May 28 Balance May 29 Balance

Answer 1

Required ratios are as calculated below:

	Current assets (a)	Inventory and Prepaid Expenses	Current assets- prepaid-Inventory = b	Current Liabilities = c	Current ratio = a/c	Acid Test ratio (b/c	Working capital a-c
May-01	800,000	280,000	520,000	400,000	2.00	1.30	400,000
May-02	75,000	75,000	0	75,000
Balance	875,000	355,000	520,000	475,000	1.84	1.09	400,000
May-08	145,000		145,000
	-65,000	-65,000	0
Balance	955,000	290,000	665,000	475,000	2.01	1.40	480,000
May-10	30,000		30,000
	-30,000		-30,000
Balance	955,000	290,000	665,000	475,000	2.01	1.40	480,000
May-15	-27,500		-27,500	-27,500
Balance	927,500	290,000	637,500	447,500	2.07	1.42	480,000
May-17			0	5,000
Balance	927,500	290,000	637,500	452,500	2.05	1.41	475,000
May-22			0	56,000
Balance	927,500	290,000	637,500	508,500	1.82	1.25	419,000
May-26	-56,000		-56,000	-56,000
Balance	871,500	290,000	581,500	452,500	1.93	1.29	419,000
May-27	95,000		95,000	95,000
Balance	966,500	290,000	676,500	547,500	1.77	1.24	419,000
May-28	105,000		105,000
Balance	1,071,500	290,000	781,500	547,500	1.96	1.43	524,000
May-29	-200,000		-200,000
Balance	871,500	290,000	581,500	547,500	1.59	1.06	324,000