Question

Selected amounts from Reingold Company's balance sheet from the beginning of the year follow $ 74,000 14,000 $ 359,600 $ 470,400 $ 10,800 $ 990,000 207,200 $63,600 108,000 $ 144,000 Cash Marketable Securities Accounts receivable, net Inventory Prepaid expenses Plant and equipment, net Accounts payable Accrued liabilities Notes due within one year Bonds payable in five years During the year, the company completed the following transactions: x. Purchased inventory on account, $53,000. a. Declared a cash dividend, $34,000. b. Paid accounts payable, $106,400. c. Collected cash on accounts receivable, $84,400. d. Purchased equipment for cash, $78,200. e. Paid a cash dividend previously declared, $34,000. f. Borrowed cash on a short-term note with the bank, $66,000. g. Sold inventory costing $73,200 for $104,000, on account h. Wrote off uncollectible accounts in the amount of $11,600 reducing the accounts receivable balance accordingly i. Sold marketable securities costing $14,0000 for cash, $10,600. j. Issued additional shares of common stock for cash, $208,000 k. Paid off all short-term notes due, $174,000 Required: 1. Compute the following amounts and ratios as of the beginning of the year: a. Working capital Working capital

Answer 1

1-a) Working capital= Current assets-Current liabilities

Current assets= Cash+Marketable securities+Accounts receivable+Inventory+Prepaid expenses

= $74000+14000+359600+470400+10800= $928800

Current liabilities= Accounts payable+Accrued liabilities+Notes due within one year

= $207200+63600+108000= $378800

Working capital= Current assets-Current liabilities

= $928800-378800= $550000

b) Current ratio= Current assets/Current liabilities

= $928800/378800= 2.45

c) Acid-test ratio= Quick assets/Current liabilities

Quick assets= Cash+Marketable securities+Accounts receivable

= $74000+14000+359600= $447600

Acid-test ratio= $447600/378800= 1.18

2)

The Effect On
	Transaction	Working Capital	Current Ratio	Acid-test Ratio
X	Purchased inventory on account	None	Decrease	Decrease
a.	Declared a cash dividend	Decrease	Decrease	Decrease
b.	Paid accounts payable	None	Increase	Increase
c.	Collected cash on accounts receivable	None	None	None
d.	Purchased equipment for cash	Decrease	Decrease	Decrease
e.	Paid a cash dividend previously declared	None	Increase	Increase
f.	Borrowed cash on a short-term note with the bank	None	Increase	Increase
g.	Sold inventory on account at more than its cost	Increase	Increase	Increase
h.	Wrote off uncollectible accounts	None	None	None
i.	Sold marketable securities at less than its cost	Decrease	Decrease	Decrease
j.	Issued additional shares of common stock for cash	Increase	Increase	Increase
k.	Paid off short-term notes	None	Increase	Increase

a) By declaring a cash dividend the current liabilities of the company will increases while the current assets and acid-test assets will remain same. By which the working capital of the company will decrease and the current ratio and acid-test ratio will also decreases.

b) When the company will pay accounts payable the current assets and current liabilities of the company will declare by $106400, by which the working capital of the company will remain same while the current ratio and acid-test ratio will increases.

c) When the company collected cash on accounts receivable the cash of the company will increases while the accounts receivable will decreases therefore, there will be no change in current assets that means the working capital, current ratio and acid-test ratio of the company will remain same.

d) If the company Purchased equipment for cash the current assets of the company will decrease means the working capital, current ratio and acid-test ratio of the company will also decreases.

e) When the company Paid a cash dividend previously declared the current assets and the current liabilities of the company will decreases while the current assets and acid-test assets will remain same. By which the working capital of the company will remain same and the current ratio and acid-test ratio will also increases.

f) When the company Borrowed cash on a short-term note with the bank the current assets and current liabilities of the company will increases with the same amount that means the working capital will remain same while the current ratio and acid-test ratio will increases.

g) When the company Sold inventory on account at more than its cost the current assets and the quick assets will increases with the difference amount by which the working capital, current ratio and acid-test ratio of the company will also increases.

h) When the company Wrote off uncollectible accounts there will be no effect on working capital, current ratio and acid-test ratio

i) When the company Sold marketable securities at less than its cost the current assets and the quick assets will decreases with the difference amount by which the working capital, current ratio and acid-test ratio of the company will also decreases.

j) By issuing additional shares for cash the current assets and the quick assets of the company will increases while the current liabilities will remain same as the shares does not come under current liabilities that means the working capital, current ratio and acid-test ratio of the company will increases.

k) When the company paid off short-term notes the current assets and the current liabilities of the company will decreases that means the working capital will remain same while the current ratio and acid-test ratio will increases.