Question

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

Cash	$405,000
Marketable securities	162,500
Accounts and notes receivable (net)	310,000
Inventories	700,000
Prepaid expenses	42,000
Accounts payable	180,000
Notes payable (short-term)	250,000
Accrued expenses	305,000

Required:

1. Compute (a) the working capital, (b) the current ratio, and (c) the quick ratio. Round ratios to one decimal place.

a. Working capital	$
b. Current ratio
c. Quick ratio

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, $55,000.	$
b. Paid accounts payable, $140,000.	$
c. Purchased goods on account, $100,000.	$
d. Paid notes payable, $115,000.	$
e. Declared a cash dividend, $150,000.	$
f. Declared a common stock dividend on common stock, $60,000.	$
g. Borrowed cash from bank on a long-term note, $230,000.	$
h. Received cash on account, $115,000.	$
i. Issued additional shares of stock for cash, $550,000.	$
j. Paid cash for prepaid expenses, $13,000.	$

Answer 1

1.

Current Assets		Current Liabilities
Cash	$      405,000.00	Accounts Payable	$ 180,000.00
Marketable Securities	$      162,500.00	Notes Payable (Short Term)	$ 250,000.00
Accounts & Notes Receivable	$      310,000.00	Accrued Expenses	$ 305,000.00
Inventories	$      700,000.00
Prepaid Expenses	$        42,000.00
Total	$ 1,619,500.00	Total	$ 735,000.00

Quick Assets = (Cash + Marketable securities + Accounts Receivable)
= $877500

Working Capital = Current Assets - Current Liabilities
= $1619500 - $735000 = $884500

Current Ratio = Current Assets / Current Liabilities
= $1619500 / $735000 = 2.20

Quick Ratio = Quick Assets / Current Liabilities
= $877500 / $735000 = 1.19

2.

	Current Assets	Quick Assets	Current Liabilities	Working Capital	Current Ratio	Quick Ratio
a.	$ 1,619,500.00	$     877,500.00	$            735,000.00	$        884,500.00	2.20	1.19	Increase in cash, decrease in securities, no effect
b.	$ 1,479,500.00	$     737,500.00	$            595,000.00	$        884,500.00	2.49	1.24	Decrease in cash & accounts payable
c.	$ 1,719,500.00	$     877,500.00	$            835,000.00	$        884,500.00	2.06	1.05	Increase in Inventory & Accounts Payable
d.	$ 1,504,500.00	$     762,500.00	$            620,000.00	$        884,500.00	2.43	1.23	Decrease in cash & notes payable
e.	$ 1,619,500.00	$     877,500.00	$            885,000.00	$        734,500.00	1.83	0.99	Increase in Current Liabilities
f.	$ 1,619,500.00	$     877,500.00	$            735,000.00	$        884,500.00	2.20	1.19	No effect
g.	$ 1,849,500.00	$ 1,107,500.00	$            735,000.00	$    1,114,500.00	2.52	1.51	Increase in cash
h.	$ 1,619,500.00	$     877,500.00	$            735,000.00	$        884,500.00	2.20	1.19	Increase in cash, decrease in accounts receivable, no effect
i.	$ 2,169,500.00	$ 1,427,500.00	$            735,000.00	$    1,434,500.00	2.95	1.94	Increase in cash
j.	$ 1,619,500.00	$     864,500.00	$            735,000.00	$        884,500.00	2.20	1.18	Decrease in cash, increase in prepaid expenses