Question

Selected balance sheet accounts for Tibbetts Company on September 30, 2019, are as follows:

Cash	$	32,000
Marketable securities		90,000
Accounts receivable, net		110,000
Inventory		125,000
Prepaid expenses		14,000
Total current assets	$	371,000
Accounts payable	$	90,000
Other accrued liabilities		22,000
Short-term debt		40,000
Total current liabilities	$	152,000

Required:

1. Calculate the working capital, current ratio, and acid-test ratio for Tibbetts Company as of September 30, 2019.
2. Summarized here are the transactions/events that took place during the fiscal year ended September 30, 2020. Prepare journal entries for the below transactions and Indicate the effect of each item on Tibbetts Company's working capital, current ratio, and acid-test ratio. Use + for increase, − for decrease, and (NE) for no effect.
   1. Credit sales for the year amounted to $240,000. The cost of goods sold was $156,000.
   2. Collected accounts receivable, $252,000.
   3. Purchased inventory on account, $168,000.
   4. Issued 500 shares of common stock for $18 per share.
   5. Wrote off $7,000 of uncollectible accounts using the allowance for bad debts.
   6. Declared and paid a cash dividend, $20,000.
   7. Sold marketable securities costing $26,000 for $31,000 in cash.
   8. Recorded insurance expense for the year, $12,000. The premium for the policy was paid in June 2019.
   9. Borrowed cash on a short-term bank loan, $10,000.
   10. Repaid principal of $40,000 and interest of $3,000 on a long-term bank loan.

Answer 1