Question

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 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, $75,000. A A b. Paid accounts payable, $125,000. c. Purchased goods on account, $100,000. A d. Paid notes payable, $105,000. A e. Declared a cash dividend, $145,000. A f. Declared a common stock dividend on common stock, $40,000. A g. Borrowed cash from bank on a long-term note, $205,000. A h. Received cash on account, $135,000 A i. Issued additional shares of stock for cash, $550,000. A j. Paid cash for prepaid expenses, $9,000. A

Answer 1

Solution to the QUESTION-1

(a)-Working capital

Working capital = Total current assets – Total current liabilities

= [Cash + Marketable securities + Accounts and notes receivable (net) + Inventories + Prepaid expenses] – [Accounts payable + Notes payable (short-term) + Accrued expenses]

= [$432,500 + $185,000 + $325,000 + $700,000 + $46,000] – [$230,000 + $245,000 + $310,000]

= $1,688,500 - $785,000

= $903,500

(b)-Current ratio

Current ratio = Total current assets / Total current liabilities

= $1,688,500 / $785,000

= 2.15 Times

(c)-Acid-test ratio

Acid-test ratio = [Total current assets – Inventory – Prepaid expenses] / Total current liabilities

= [$1,688,500 - $700,000 - $46,000] / $785,000

= $942,500 / $785,000

= 1.20 Times