Question

Effect of Transactions on Current Position Analysis

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

Cash	$229,600
Temporary investments	118,300
Accounts and notes receivable (net)	347,900
Inventories	519,400
Prepaid expenses	27,300
Accounts payable	174,000
Notes payable (short-term)	248,500
Accrued expenses	74,500

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, $56,000.		$
b. Paid accounts payable, $99,000.		$
c. Purchased goods on account, $62,000.		$
d. Paid notes payable, $124,250.		$
e. Declared a cash dividend, $99,000.		$
f. Declared a stock dividend on common stock, $30,000.		$
g. Borrowed cash from bank on a long-term note, $248,500.		$
h. Received cash on account, $84,500.		$
i. Issued additional shares of stock for cash, $497,000.		$
j. Paid cash for prepaid expenses, $49,700.		$

Answer 1

• All working forms part of the answer
• Please follow the below working which shows the updated balances on Quick Assets, Current Assets and Current Liabilities after every independent transaction given.

“Balance” column = Original data + Effect data of that transaction.

Transaction		Cash	Temporary Investments	A/R Net	Quick Asset	Inventories	Prepaid Expenses	Total Current Assets	Accounts payable	Notes Payable (ST)	Accrued expense	Total Current Liabilties
	Original	$             2,29,600.00	$                    1,18,300.00	$                             3,47,900.00	$                       6,95,800.00	$                      5,19,400.00	$                          27,300.00	$                  12,42,500.00	$             1,74,000.00	$              2,48,500.00	$                                          74,500.00	$          4,97,000.00
a.	Effect	$                 56,000.00	$                      (56,000.00)		$                                          -			$                                       -				$                             -
	Balance	$             2,85,600.00	$                        62,300.00	$                             3,47,900.00	$                       6,95,800.00	$                      5,19,400.00	$                          27,300.00	$                  12,42,500.00	$             1,74,000.00	$              2,48,500.00	$                                          74,500.00	$          4,97,000.00
b.	Effect	$               (99,000.00)			$                         (99,000.00)			$                      (99,000.00)	$              (99,000.00)			$            (99,000.00)
	Balance	$             1,30,600.00	$                    1,18,300.00	$                             3,47,900.00	$                       5,96,800.00	$                      5,19,400.00	$                          27,300.00	$                  11,43,500.00	$                 75,000.00	$              2,48,500.00	$                                          74,500.00	$          3,98,000.00
c.	Effect				$                                          -	$                         62,000.00		$                        62,000.00	$                 62,000.00			$              62,000.00
	Balance	$             2,29,600.00	$                    1,18,300.00	$                             3,47,900.00	$                       6,95,800.00	$                      5,81,400.00	$                          27,300.00	$                  13,04,500.00	$             2,36,000.00	$              2,48,500.00	$                                          74,500.00	$          5,59,000.00
d.	Effect	$           (1,24,250.00)			$                     (1,24,250.00)			$                  (1,24,250.00)		$            (1,24,250.00)		$        (1,24,250.00)
	Balance	$             1,05,350.00	$                    1,18,300.00	$                             3,47,900.00	$                       5,71,550.00	$                      5,19,400.00	$                          27,300.00	$                  11,18,250.00	$             1,74,000.00	$              1,24,250.00	$                                          74,500.00	$          3,72,750.00
e.	Effect				$                                          -			$                                       -				$                             -
	Balance	$             2,29,600.00	$                    1,18,300.00	$                             3,47,900.00	$                       6,95,800.00	$                      5,19,400.00	$                          27,300.00	$                 12,42,500.00	$             1,74,000.00	$              2,48,500.00	$                                          74,500.00	$          4,97,000.00
f.	Effect				$                                          -			$                                       -				$                             -
	Balance	$             2,29,600.00	$                    1,18,300.00	$                             3,47,900.00	$                       6,95,800.00	$                      5,19,400.00	$                          27,300.00	$                  12,42,500.00	$             1,74,000.00	$              2,48,500.00	$                                          74,500.00	$          4,97,000.00
g.	Effect	$             2,48,500.00			$                       2,48,500.00			$                    2,48,500.00				$                             -
	Balance	$             4,78,100.00	$                    1,18,300.00	$                             3,47,900.00	$                       9,44,300.00	$                      5,19,400.00	$                          27,300.00	$                  14,91,000.00	$             1,74,000.00	$              2,48,500.00	$                                          74,500.00	$          4,97,000.00
h.	Effect	$                 84,500.00		$                              (84,500.00)	$                                          -			$                                       -				$                             -
	Balance	$             3,14,100.00	$                    1,18,300.00	$                             2,63,400.00	$                       6,95,800.00	$                      5,19,400.00	$                          27,300.00	$                  12,42,500.00	$             1,74,000.00	$              2,48,500.00	$                                          74,500.00	$          4,97,000.00
i.	Effect	$             4,97,000.00			$                       4,97,000.00			$                    4,97,000.00				$                             -
	Balance	$             7,26,600.00	$                    1,18,300.00	$                             3,47,900.00	$                     11,92,800.00	$                      5,19,400.00	$                          27,300.00	$                  17,39,500.00	$             1,74,000.00	$              2,48,500.00	$                                          74,500.00	$          4,97,000.00
j.	Effect	$               (49,700.00)			$                         (49,700.00)		$                          49,700.00	$                                       -				$                             -
	Balance	$             1,79,900.00	$                    1,18,300.00	$                             3,47,900.00	$                       6,46,100.00	$                      5,19,400.00	$                          77,000.00	$                  12,42,500.00	$             1,74,000.00	$              2,48,500.00	$                                          74,500.00	$          4,97,000.00

• Answers based on above working:

BALANCES	Quick Asset	Total Current Assets	Total Current Liabilities	Working Capital	Current ratio	Quick ratio
(as per working above)	(A)	(B)	(C)	[ B – C]	[ B / C ]	[ A / C]
Original	$                    6,95,800.00	$                          12,42,500.00	$                       4,97,000.00	$                      7,45,500.00	2.5	1.4
a.	$                    6,95,800.00	$                          12,42,500.00	$                       4,97,000.00	$                      7,45,500.00	2.5	1.4
b.	$                    5,96,800.00	$                          11,43,500.00	$                       3,98,000.00	$                      7,45,500.00	2.9	1.5
c.	$                    6,95,800.00	$                          13,04,500.00	$                       5,59,000.00	$                      7,45,500.00	2.3	1.2
d.	$                    5,71,550.00	$                          11,18,250.00	$                       3,72,750.00	$                      7,45,500.00	3.0	1.5
e.	$                    6,95,800.00	$                          12,42,500.00	$                       4,97,000.00	$                      7,45,500.00	2.5	1.4
f.	$                    6,95,800.00	$                          12,42,500.00	$                       4,97,000.00	$                      7,45,500.00	2.5	1.4
g.	$                    9,44,300.00	$                          14,91,000.00	$                       4,97,000.00	$                      9,94,000.00	3.0	1.9
h.	$                    6,95,800.00	$                          12,42,500.00	$                       4,97,000.00	$                      7,45,500.00	2.5	1.4
i.	$                  11,92,800.00	$                          17,39,500.00	$                       4,97,000.00	$                   12,42,500.00	3.5	2.4
j.	$                    6,46,100.00	$                          12,42,500.00	$                       4,97,000.00	$                      7,45,500.00	2.5	1.3