Question

Data pertaining to the current position of Lucroy Industries Inc. follow:

Cash	$420,000
Marketable securities	177,500
Accounts and notes receivable (net)	335,000
Inventories	700,000
Prepaid expenses	40,000
Accounts payable	190,000
Notes payable (short-term)	240,000
Accrued expenses	295,000

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. 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, $130,000.	$
c. Purchased goods on account, $135,000.	$
d. Paid notes payable, $110,000.	$
e. Declared a cash dividend, $150,000.	$
f. Declared a common stock dividend on common stock, $55,000.	$
g. Borrowed cash from bank on a long-term note, $210,000.	$
h. Received cash on account, $125,000.	$
i. Issued additional shares of stock for cash, $585,000.	$
j. Paid cash for prepaid expenses, $15,000.

Answer 1

Cash	420,000	Accounts payable	190,000
Marketable securities	177,500	Notes payable (short term	240,000
Accounts and notes receivable (net)	335,000	Accrued expenses	295,000
Inventories	700,000
Prepaid expenses	40,000
Total current assets	1,672,500	Total current liabilities	725,000

(1):

Working capital = current assets - current liabilities	947,500
Current ratio = current assets/current liabilities	2.3
Quick ratio = (cash+marketable securities+receivables)/current liabilities	1.3

(2):  

	Working capital		Current ratio	Quick ratio		Explanation
a	$	947,500	2.3	1.3		Marketable securities will fall by $60000 and cash will increase by the same amount
b	$	947,500	2.6	1.3		Accounts payable and cash both will reduce by 130,000
c	$	947,500	2.1	1.1		Inventory and notes payable both will increase by 135,000
d	$	947,500	2.5	1.3		Cash and notes payable both will fall by 110,000
e	$	797,500	1.9	1.1		There will be no impact on current assets and dividends payable (a current liability) will increase by 150,000
f	$	947,500	2.3	1.3		There will be no impact on current assets and current liabilities
g	$	1,157,500	2.6	1.6		Here cash will only increase by 210,000
h	$	947,500	2.3	1.3		Here cash will increase by 125,000 and receivables will decline by 125,000
i	$	1,532,500	3.1	2.1		Here cash will increase by 585,000
j	$	947,500	2.3	1.3		Here cash will decline by 15,000 and prepaid expenses will increase by 15,000