Question

In: Accounting

Selected balance sheet accounts for Tibbetts Company on September 30, 2019, are as follows: Cash $...

Selected balance sheet accounts for Tibbetts Company on September 30, 2019, are as follows:

Cash $ 41,600
Marketable securities 117,000
Accounts receivable, net 143,000
Inventory 162,500
Prepaid expenses 18,200
Total current assets $ 482,300
Accounts payable $ 81,000
Other accrued liabilities 19,800
Short-term debt 36,000
Total current liabilities $ 136,800

Required:

  1. Calculate the working capital, current ratio, and acid-test ratio for Tibbetts Company as of September 30, 2019.
  2. Summarized here are the transactions/events that took place during the fiscal year ended September 30, 2020. Prepare journal entries for the below transactions and Indicate the effect of each item on Tibbetts Company's working capital, current ratio, and acid-test ratio. Use + for increase, − for decrease, and (NE) for no effect.
    1. Credit sales for the year amounted to $312,000. The cost of goods sold was $202,800.
    2. Collected accounts receivable, $327,600.
    3. Purchased inventory on account, $218,400.
    4. Issued 650 shares of common stock for $23 per share.
    5. Wrote off $9,100 of uncollectible accounts using the allowance for bad debts.
    6. Declared and paid a cash dividend, $26,000.
    7. Sold marketable securities costing $33,800 for $40,300 in cash.
    8. Recorded insurance expense for the year, $15,600. The premium for the policy was paid in June 2019.
    9. Borrowed cash on a short-term bank loan, $13,000.
    10. Repaid principal of $52,000 and interest of $3,900 on a long-term bank loan.

Solutions

Expert Solution

Working Capital:

Current Assets - Current Liabilities = 482300 - 136800 = 345500

Working Capital ratio:

Current Assets / Current Liabilities = 482300/136800 = 3.53

Acid Test Ratio (ATR):

Liquid Current Assets / Current Liabilities

Liquid Current Assets here are :

  • Cash
  • Marketable securities
  • Accounts receivable, net

Therefore Liquid Current Asset Total = 41600 + 117000 + 143000 = 301600

ATR = 301600 / 136800 = 2.20

JOURNAL with corresponding Impacts on Ratios:

ekkarill92 answered 2 years ago
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