Question

Effect of Transactions on Current Position Analysis

Data pertaining to the current position of Newlan Company are as follows:

Cash	$234,100
Temporary investments	120,600
Accounts and notes receivable (net)	354,800
Inventories	359,500
Prepaid expenses	18,900
Accounts payable	165,600
Notes payable (short-term)	236,500
Accrued expenses	70,900

Instructions:

1. Compute (a) the working capital, (b) the current ratio, and (c) the quick ratio. Round the current ratio and the quick ratio to one decimal place.

Working capital		$
Current ratio
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 above. Format working capital as whole dollars. Round the current ratio and the quick ratio to one decimal place.

Transaction		Working Capital	Current Ratio	Quick Ratio
a. Sold temporary investments for cash at no gain or loss, $53,000.		$
b. Paid accounts payable, $95,000.		$
c. Purchased goods on account, $59,000.		$
d. Paid notes payable, $118,250.		$
e. Declared a cash dividend, $95,000.		$
f. Declared a stock dividend on common stock, $28,500.		$
g. Borrowed cash from bank on a long-term note, $236,500.		$
h. Received cash on account, $80,500.		$
i. Issued additional shares of stock for cash, $473,000.		$
j. Paid cash for prepaid expenses, $47,300.		$

Answer 1

As per answering guidelines we can answer only 4 sub parts to a question therefore I have done calculation till d part. Answer below :-

		CA/CL
Cash	$234,100	CA
Temporary investments	120,600	CA
Accounts and notes receivable (net)	354,800	CA	Total CA	$1,087,900
Inventories	359,500	CA	Total CL	473,000
Prepaid expenses	18,900	CA	Current Ratio= CA/CL = 1087900/473000
Accounts payable	165,600	CL	Quick Assets = (Cash + Marketable Sec + A.R)
Notes payable (short-term)	236,500	CL	=	709,500
Accrued expenses	70,900	CL	Quick Ratio = Quick Asset/CL = 709500/473000

1. Compute (a) the working capital, (b) the current ratio, and (c) the quick ratio. Round the current ratio and the quick ratio to one decimal place.
Working capital		614,900
Current ratio	2.3
Quick ratio	1.5

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 above. Format working capital as whole dollars. Round the current ratio and the quick ratio to one decimal place.
Transaction		Working Capital	Current Ratio	Quick Ratio
a. Sold temporary investments for cash at no gain or loss, $53,000.		614,900	2.3	1.5
b. Paid accounts payable, $95,000.		614,900	2.6	1.6
c. Purchased goods on account, $59,000.		614,900	2.2	1.3
d. Paid notes payable, $118,250.		614,900	2.7	1.7

Working
a	No Effect on the Ratio as Temporary Inv has decreased and Cash has increased. All 3 remain same
b	Current Ratio = (1087900-95000)/(473000-95000) = 2.6
	Quick Ratio = (709500-95000)/(473000-95000)
c	Inventory Increased and Account payable Increased no effect on Working Capital
	Current Ratio = (1087900+59000)/(473000+53000)
	Quick Ratio = (709500)/(473000+59000)
d	Notes Payable decreased and Cash decreased no effect on Working Capital
	Current Ratio = (1087900-118250)/(473000-118250)
	Quick Ratio = (709500-118250)/(473000-118250)