Question

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

Cash	$442,500
Marketable securities	180,000
Accounts and notes receivable (net)	300,000
Inventories	750,000
Prepaid expenses	50,000
Accounts payable	180,000
Notes payable (short-term)	260,000
Accrued expenses	320,000

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, $60,000.	$
b. Paid accounts payable, $105,000.
c. Purchased goods on account, $115,000.
d. Paid notes payable, $100,000.
e. Declared a cash dividend, $120,000.
f. Declared a common stock dividend on common stock, $60,000.
g. Borrowed cash from bank on a long-term note, $215,000.
h. Received cash on account, $140,000.
i. Issued additional shares of stock for cash, $650,000.
j. Paid cash for prepaid expenses, $10,000.

.

Answer 1

1. Workings:

Current Assets = Cash + Marketable Securities + Accounts & Notes Receivables + Inventories + Prepaid Expenses

= 442,500 + 180,000 + 300,000 + 750,000 + 50,000

= $1,722,500

Current Liabilities = Accounts Payable + Notes Payable + Accrued Expenses

= 180,000 + 260,000 + 320,000

= $760,000

Quick Assets = Cash + Marketable Securities + Accounts & Notes Receivables

= 442,500 + 180,000 + 300,000

= $922,500

a. Working Capital = Current Assets - Current Liabilities

= 1,722,500 - 760,000

= $962,500

b. Current Ratio = Current Assets / Current Liabilities

= 1,722,500 / 760,000

= 2.26

= 2.3 (rounded off)

c. Quick Ratio = Quick Assets / Current Liabilities

= 922,500 / 760,000

= 1.21

= 1.2 (rounded off)

2.

S.No.	Current Assets	Current Liabilities	Quick Assets	Working Capital	Current Ratio	Quick Ratio
a.	1,722,500	760,000	922,500	$962,500	2.3	1.2
b.	1,617,500	655,000	817,500	$962,500	2.5	1.2
c.	1,837,500	875,000	922,500	$962,500	2.1	1.1
d.	1,622,500	660,000	822,500	$962,500	2.5	1.2
e.	1,722,500	880,000	922,500	$842,500	2.0	1.0
f.	1,722,500	820,000	922,500	$902,500	2.1	1.1
g.	1,937,500	760,000	1,137,500	$1,177,500	2.5	1.5
h.	1,722,500	760,000	922,500	$962,500	2.3	1.2
i.	2,372,500	760,000	1,572,500	$1,612,500	3.1	1.5
j.	1,722,500	760,000	932,500	$962,500	2.3	1.2