Question

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

Cash	$430,000
Marketable securities	160,000
Accounts and notes receivable (net)	330,000
Inventories	700,000
Prepaid expenses	50,000
Accounts payable	240,000
Notes payable (short-term)	245,000
Accrued expenses	285,000

	Required:
1.	Compute (A) the working capital, (B) the current ratio, and (C) the quick ratio. Round ratios to one decimal place.
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 of the table provided. Consider each transaction separately and assume that only that transaction affects the data given. Round to one decimal place. A. Sold marketable securities at no gain or loss, 50,000. B. Paid accounts payable, 105,000. C. Purchased goods on account, 105,000. D. Paid notes payable, 120,000. E. Declared a cash dividend, 160,000. F. Declared a common stock dividend on common stock, 35,000. G. Borrowed cash from bank on a long-term note, 200,000. H. Received cash on account, 120,000. I. Issued additional shares of stock for cash, 565,000. J. Paid cash for prepaid expenses, 10,000.

Answer 1

Solution:

Part 1(A) – Working Capital

Working Capital is the difference of Total Current Assets and Total Current Liabilities.

Working Capital = Total Current Asset – Total Current Liabilities

	$$
Cash	$430,000
Marketable securities	160,000
Accounts and notes receivable (net)	330,000
Inventories	700,000
Prepaid expenses	50,000
Total Current Assets (A)	1,670,000
Accounts payable	240,000
Notes payable (short-term)	245,000
Accrued expenses	285,000
Total Current Liabilities (B)	770,000
Working Capital (A - B)	900,000

Part 1(B) --- Current Ratio

Current Ratio = Total Current Assets / Total Current Liabilities

= $1670,000 / 770,000

= 2.1688

Part 1(C ) – Quick Ratio

Quick ratio is the ratio of most liquid assets over current liabilities.

Quick Ratio = Quick Assets / Total Current Liabilities

Quick Assets mean most liquid assets which are readily convertible into cash.

Quick Assets = Total Assets 1670,000 – Inventories 700,000 – Prepaid Expenses 50,000

= 920,000

Quick Ratio = 920,000 / 770,000 = 1.193

Part 2(A) –

No effect on any of the above ratios, since sale proceeds from marketable securities are added in cash and cash is the part of current assets. Hence the ratios will remain same as above.

Working Capital (same) = 900,000

Current Ratio = 2.1688

Quick Ratio = 1.193

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

Pls ask separate question for remaining parts.