Question

In: Accounting

On January 1, 2018, the general ledger of ACME Fireworks includes the following account balances:   ...

On January 1, 2018, the general ledger of ACME Fireworks includes the following account balances:
  

  Accounts Debit Credit
  Cash $ 25,100
  Accounts Receivable 46,200
  Allowance for Uncollectible Accounts $ 4,200
  Inventory 20,000
  Land 46,000
  Equipment 15,000
  Accumulated Depreciation 1,500
  Accounts Payable 28,500
  Notes Payable (6%, due April 1, 2019) 50,000
  Common Stock 35,000
  Retained Earnings 33,100
       Totals $ 152,300 $ 152,300

  
During January 2018, the following transactions occur:

January 2. Sold gift cards totaling $8,000. The cards are redeemable for merchandise within one year of the purchase date.
January 6. Purchase additional inventory on account, $147,000.
January 15. Firework sales for the first half of the month total $135,000. All of these sales are on account. The cost of the units sold is $73,800.
January 23. Receive $125,400 from customers on accounts receivable.
January 25. Pay $90,000 to inventory suppliers on accounts payable.
January 28. Write off accounts receivable as uncollectible, $4,800.
January 30. Firework sales for the second half of the month total $143,000. Sales include $11,000 for cash and $132,000 on account. The cost of the units sold is $79,500.
January 31. Pay cash for monthly salaries, $52,000.

Current Ratio
Choose Numerator ÷ Choose Denominator = Current Ratio
Current assets ÷ Current liabilities = Current Ratio
÷ $103,750 = 0.00
Acid-test Ratio
Choose Numerator ÷ Choose Denominator = Acid-test Ratio
Quick assets ÷ Current liabilities = Acid-test Ratio
÷ $103,750 = 0.00

Solutions

Expert Solution

Accounts Receivable (Opening Bal) = 46,200

+) Sales during the month = 135,000 + 132,000 = 267,000

–) Cash Received from Debtors = 125,400

–) Allowance for Uncollectible Accounts = 4,800

Accounts Receivable (Closing Bal) = 183,000

Cash (Opening Bal) = 25,100

+) Gift Card Sales = 8,000

+) Cash Received from Debtors = 125,400

+) Sale during the month = 11,000

–) Payments to Creditors = 90,000

–) Salaries Paid = 52,000

Cash (Closing Bal) = 27,500

Inventory (Opening Bal) = 20,000

+) Purchase during the month = 147,000

–) Sale during the month = 73,800

–) Sale during the month = 79,500

Inventory (Closing Bal) = 13,700

Current Liabilities = 103,750

1. Current Ratio :

= (Receivables + Cash + Inventory) / Current Liabilities

= (183,000 + 27,500 + 13,700) / 103,750

= 224,200 / 103,750

= 2.16

2. Quick Ratio :

= (Receivables + Cash) / Current Liabilities

= (183,000 + 27,500) / 103,750

= 210,500 / 103,750

= 2.03


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