Question

Newbury began a music business in July 2018 Newtwy prepares my Inancial statements and the sceral basis of accounting The following transactions are Newbury Company's only active during my though October 14 Bog on account for 5 with payment to the supplier due in cay Aug) Performed on accor Alava Turner for 156. collectible from her in days Uud up all the music purchased on 14 Sep 16 Collected the $55 receivable from Turner Od 22 Pad4365owed is the supplier om te My 14 transaction in which month should Newbury record the cost of the mus an uapente? OA September OB. Jy OC. Odobe 00 Angol

Answer 1

Current assets = $105,000

Current liabilities = $130,000

Part 1

Although music was purchased in the month of July but it was used up in the month of August.

Hence, cost of music should be recorded as an expense in the month of August.

Correct option is (D)

Part 2

Stock issued of $140,000

Current assets will increase to = Current assets + Stock issued

= 105,000 + 140,000

= $245,000

But stock issue will not effect current liabilities.

Current ratio (After stock issue) = Current assets/Current liabilities

= 245,000/130,000

= 1.88

Correct option is (C)