Question

)   Hitaki Sales Inc. began the month of July with $562,500 of current assets, a current ratio of 2.25:1, and an acid-test ratio of 1.00:1. During the month, it completed the following transactions (the company uses a perpetual inventory system). (50 points)
July   3   Purchased $67,500 of merchandise inventory on credit.
   10   Sold merchandise inventory that cost $75,000 for $120,000 cash.
   12   Collected $40,000 cash on an account receivable.
   14   Paid $32,000 cash to settle an account payable.
   16   Wrote off a $10,000 bad debt against the Allowance for Doubtful Accounts.
   20   Declared a $2 per share cash dividend on its 30,000 shares of outstanding common stock.
   22   Paid the dividend declared on July 22.
24   Borrowed $75,000 cash by giving the bank a 90-day, 6% note.
   26   Borrowed $75,000 cash by signing a long-term secured note.
   27   Used the $80,000 cash proceeds from the notes to buy new machinery.
Prepare a table showing Kiwi Java Time’s (1) current ratio, (2) acid-test ratio, and (3) working capital, after each transaction. Round ratios to two decimals.

Transaction       Current   Quick            Current             Current            Acid-Test       Working
             Assets   Assets       Liabilities   Ratio       Ratio            Capital

Beginning      
July 3                                                      .
Balance          
July 10          
                                                 .
Balance          
July 12          
                                                                          .
Balance          
July 14                                                                                                     .
Balance          
July 16                                                                                         .
Balance          
July 20                                                                           .
Balance          
July 22                                                                                            .
Balance          
July 24                                                                                                      .
Balance          
July 26                                                                                        .
Balance              
July 27                                                                                     .
Balance                                                                                                                  .
      

Answer 1

(1) current ratio, (2) acid-test ratio, and (3) working capital, after each transaction is as prepared below:

	Current assets (a)	Inventory and Prepaid Expenses	Current assets- prepaid-Inventory = b	Current Liabilities = c	Current ratio = a/c	Acid Test ratio (b/c	Working capital a-c
Jul-01	5,62,500	3,12,500	2,50,000	2,50,000	2.25	1.00	3,12,500
Jul-03	67,500	67,500	0	67,500
Balance	6,30,000	3,80,000	2,50,000	3,17,500	1.98	0.79	3,12,500
Jul-10	1,20,000		1,20,000
	-75,000	-75,000	0
Balance	6,75,000	3,05,000	3,70,000	3,17,500	2.13	1.17	3,57,500
Jul-12	40,000		40,000
	-40,000		-40,000
Balance	6,75,000	3,05,000	3,70,000	3,17,500	2.13	1.17	3,57,500
Jul-14	-32,000		-32,000	-32,000
Balance	6,43,000	3,05,000	3,38,000	2,85,500	2.25	1.18	3,57,500
Jul-16			0	10,000
Balance	6,43,000	3,05,000	3,38,000	2,95,500	2.18	1.14	3,47,500
Jul-20			0	60,000
Balance	6,43,000	3,05,000	3,38,000	3,55,500	1.81	0.95	2,87,500
Jul-22	-60,000		-60,000	-60,000
Balance	5,83,000	3,05,000	2,78,000	2,95,500	1.97	0.94	2,87,500
Jul-24	75,000		75,000	75,000
Balance	6,58,000	3,05,000	3,53,000	3,70,500	1.78	0.95	2,87,500
Jul-26	75,000		75,000
Balance	7,33,000	3,05,000	4,28,000	3,70,500	1.98	1.16	3,62,500
Jul-27	-80,000		-80,000
Balance	6,53,000	3,05,000	3,48,000	3,70,500	1.76	0.94	2,82,500