Question

On June 30, 2018, Rundle Company’s total current assets were $500,500 and its total current liabilities were $272,500. On July 1, 2018, Rundle issued a short-term note to a bank for $40,400 cash.

Required

Compute Rundle’s working capital before and after issuing the note.

Compute Rundle’s current ratio before and after issuing the note. (Round your answers to 2 decimal places.)

Before the transaction After the transaction a. Working Capital b. Current Ratio On June 30, 2018, Vernon Company’s total current assets were $501,000 and its total current liabilities were $278,500. On July 1, 2018, Vernon issued a long-term note to a bank for $39,000 cash. Required Compute Vernon’s working capital before and after issuing the note. Compute Vernon’s current ratio before and after issuing the note. (Round your answers to 1 decimal place.) Before the transaction After the transaction a. Working Capital b. Current Ratio

Answer 1

Part 1

When Short term notes are issues cash increases which ultimately adds to Current assets. Short term notes is a current liability so current liability also increases

	Total Current assets (A)	Total current liabilities(B)	Working Capital(A-B)	Current Ratio (A/B)
	$ 500,500.00	$ 272,500.00	$ 228,000.00	1.84
Issue of short term notes payable	$    40,400.00	$    40,400.00
Current assets after notes issue	$ 540,900.00	$ 312,900.00	$ 228,000.00	1.73

		Before the transaction	After the transaction
a.	Working Capital	$ 228,000.00	$ 228,000.00
b.	Current Ratio	1.84	1.73

Part 2

When Long term notes are issues cash increases which ultimately adds to Current assets but current liabilities does not increase because long term notes is a long term liability.

	Total Current assets (A)	Total current liabilities(B)	Working Capital(A-B)	Current Ratio (A/B)
	$ 501,000.00	$             278,500.00	$ 222,500.00	1.80
Issue of short term notes payable	$     39,000.00
Current assets after notes issue	$ 540,000.00	$             278,500.00	$ 261,500.00	1.94

		Before the transaction	After the transaction
a.	Working Capital	$ 222,500.00	$ 261,500.00
b.	Current Ratio	1.8	1.9