Question

1.

Quick Ratio

Nabors Company reported the following current assets and liabilities for December 31 for two recent years:

	Dec. 31, Current Year		Dec. 31, Previous Year
Cash	$1,100		$820
Temporary investments	2,400		1,830
Accounts receivable	2,000		1,250
Inventory	1,800		1,760
Accounts payable	5,000		3,900

Required:

a. Compute the quick ratio on December 31 of both years. If required, round your answers to one decimal place.

	Quick Ratio
December 31, current year
December 31, previous year

b. Is the quick ratio improving or declining?

2.

A business issued a 45-day, 4% note for $260,000 to a creditor on account.

Journalize the entries to record (a) the issuance of the note on January 1 and (b) the payment of the note at maturity, including interest. Assume a 360-day year. Refer to the Chart of Accounts for exact wording of account titles.

CHART OF ACCOUNTS

CHART OF ACCOUNTSGeneral Ledger

	ASSETS
110	Cash
111	Accounts Receivable
112	Interest Receivable
113	Notes Receivable
115	Merchandise Inventory
116	Supplies
118	Prepaid Insurance
120	Land
123	Building
124	Accumulated Depreciation-Building
125	Office Equipment
126	Accumulated Depreciation-Office Equipment

	LIABILITIES
210	Accounts Payable
213	Interest Payable
214	Notes Payable
215	Salaries Payable
216	Social Security Tax Payable
217	Medicare Tax Payable
218	Employees Federal Income Tax Payable
219	Employees State Income Tax Payable
221	Retirement Savings Deductions Payable
224	Federal Unemployment Tax Payable
225	State Unemployment Tax Payable
226	Vacation Pay Payable
227	Unfunded Pension Liability
228	Product Warranty Payable
229	EPA Fines Payable
230	Litigation Claims Payable

	EQUITY
310	Owner, Capital
311	Owner, Drawing
312	Income Summary

	REVENUE
410	Sales
610	Interest Revenue

	EXPENSES
510	Cost of Merchandise Sold
520	Salaries Expense
524	Depreciation Expense-Building
525	Delivery Expense
526	Repairs Expense
529	Selling Expenses
531	Rent Expense
532	Depreciation Expense-Office Equipment
533	Insurance Expense
534	Supplies Expense
535	Payroll Tax Expense
536	Vacation Pay Expense
537	Pension Expense
538	Cash Short and Over
539	Product Warranty Expense
540	Damage Awards and Fines
541	Miscellaneous Expense
710	Interest Expense

3.

Entries for Discounted Note Payable

A business issued a 30-day note for $54,000 to a creditor on account. The note was discounted at 9%. Assume a 360-day year.

a. Journalize the entry to record the issuance of the note. For a compound transaction, if an amount box does not require an entry, leave it blank. If necessary, round to one decimal place.

a.

b. Journalize the entry to record the payment of the note at maturity.

b.

Answer 1

1)
	Quick ratio = (Cash+ investment +account receivable)/current liabilities
		Current year = (1,100+2,400+2000)/5000
				1.1
		previous year = (820+1830+1250)/3900
				1.00
	b)	improving
2)	Journal Entries for notes
	Account titles & Explanation				Debit	Credit
a)	Accounts payable				260,000
	Notes payable					260,000
b)	Notes payable				260,000
	interest expense		(260,000*4%*45/360)		1300
	cash					261,300
3)
	Journal Entries for notes
	Account titles & Explanation				Debit	Credit
a)	accounts payable				53,595
	interest expense				405
	Notes payable					54,000
b)	Notes payable				54,000
	Cash					54,000