Question

Effect of Transactions on Current Position Analysis

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

Cash	$432,500
Marketable securities	185,000
Accounts and notes receivable (net)	325,000
Inventories	700,000
Prepaid expenses	46,000
Accounts payable	230,000
Notes payable (short-term)	245,000
Accrued expenses	310,000

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 $ 903,500 b. Current ratio 2.2 c. Quick ratio 1.20 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, $75,000 $ 903,500 2.2 → 1.2 b. Paid accounts payable, $125,000. $ 903,500 2.4 1.2 c. Purchased goods on account, $100,000 $ 903,500 2 1.1 d. Paid notes payable, $105,000. 903,500 [ 2.3 e. Declared a cash dividend, $145,000. 758,500 1.8 $ f. Declared a common stock dividend on common stock, $40,000. g. Borrowed cash from bank on a long-term note, $205,000. h. Received cash on account, $135,000. i. Issued additional shares of stock for cash, $550,000. j. Paid cash for prepaid expenses, $9,000.

Please help me from f-j.

Answer 1

	Working	Current	Quick
	Capital	Ratio	Ratio
f)	903500	2.2	1.20
g)	1108500	2.4	1.46
h)	903500	2.2	1.20	(Note)
i)	1453500	2.9	1.90
j)	903500	2.2	1.19

Note:
Working Capital =		Current Assets - Current Liabilities
	=	($ 432500 + $ 185000 + $ 325000 + $ 700000 + $ 46000) - ($ 230000 + $ 245000 + $ 310000)
	=	903500
Quick Ratio =		(Cash + Marketable Securities + Accounts and Notes Receivable) / Current Liabilities
	=	($ 432500 + $ 185000 + $ 325000) / ($ 230000 + $ 245000 + $ 310000)
	=	1.20
Current Ratio =		Current Assets / Current Liabilities
	=	($ 432500 + $ 185000 + $ 325000 + $ 700000 + $ 46000) / ($ 230000 + $ 245000 + $ 310000)
	=	2.2
Received cash on account means cash received from debtors
Cash will increase by $ 135000 and accounts receivable will decrease by $ 135000
Therefore, there won't be any changes in Quick and Current Ratio

Is it correct?