Question

Data pertaining to the current position of Lucroy Industries Inc. are as follows:

Cash	$442,500
Marketable securities	175,000
Accounts and notes receivable (net)	315,000
Inventories	700,000
Prepaid expenses	40,000
Accounts payable	200,000
Notes payable (short-term)	240,000
Accrued expenses	315,000

Required:

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

a. Working capital	$
b. Current ratio
c. 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. Round ratios to one decimal place. Transaction Working Capital Current Ratio Quick Ratio a. Sold marketable securities at no gain or loss, $55,000. $ b. Paid accounts payable, $115,000. c. Purchased goods on account, $115,000. d. Paid notes payable, $110,000. e. Declared a cash dividend, $145,000. f. Declared a common stock dividend on common stock, $45,000. g. Borrowed cash from bank on a long-term note, $205,000. h. Received cash on account, $140,000. i. Issued additional shares of stock for cash, $635,000. j. Paid cash for prepaid expenses, $9,000.

Answer 1

Current assets = Cash + Marketable securities + Accounts and Notes receivables + Inventories + Prepaid expenses.

= 442500 + 175000 + 315000 + 700000 + 40000.

= $ 1672500.

Current liabilities = Accounts payable + Notes payable + Accrued expenses.

= 200000 + 240000 + 315000

= $ 755000.

Question 1). a). Solution :-

Working capital = Current assets - Current liabilities.

= 1672500 - 755000

= $ 917500.

Question 1). b). Solution :- Current ratio = Current assets / Current liabilities.

= 1672500 / 755000

= 2.2 : 1

Question 1). c). Solution :- Quick ratio = Liquid assets / Current liabilities.

Liquid assets = Current assets - Inventories - Prepaid expenses.

= 1672500 - 700000 - 40000.

= $ 932500.

Current liabilities = $ 755000.

Accordingly, Quick ratio = 932500 / 755000

= 1.2 : 1

Conclusion :-

Question 1). a). Working capital	$ 917500.
Question 1). b). Current ratio	2.2 : 1
Question 1). c). Quick ratio	1.2 : 1