Homework Answers
Answer:
1. Calculation of net working capital:
Net Working Capital = Current Assets - Current Liabilities
= $150,000 - $75,000
= $75,000
2. Calculation of current & debt ratio:
Current Ratio = Total Current Assets / Total Current Liabilities
= $150,000 / $75,000
= 2:1
Debt Ratio = Total Liabilities / Total Assets
= $120,000 / $300,000
= 0.40
3. Impact of transactions on current ratio & debt ratio:
(a) Receiving $10,000 in cash for exchange for common stock results in improvement of both the current ratio & debt ratio.
(b) Accruing for $2,000 of salaries expenses results in Deteriorate of current ratio & no change in debt ratio.
(c) Purchasing $2,500 of supplies on account results in Deteriorate of current ratio & no change in debt ratio.
ANSWER :
1.
Net working capital
= Current assets - current liabilities
= 150000 - 75000
=75000 ($) (ANSWER).
2.
Current ratio
= Current assets / Current liabilities
= 150000 / 75000
= 2.0 (ANSWER)
Debt ratio
= Total liabilities / Total assets
= 120000 / 300000
= 0.40
= 40% (ANSWER)
3.
a.
Current assets increase by $10000 and Owners’ equity decrease by $10000.
Hence, current ratio will improve and debt ratio will decline. (ANSWER).
b.
Current liabilities increase by $2000 and owners’ equity decline by $2000
So, current ratio deteriorates and debt ratio also decline. (ANSWER)
c.
Current liabilities increase by $2500 and Inventory increases by $2500.
So, current ratio : improve and debt ratio : rise . (ANSWER)
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