Exercise 146 Keener Incorporated had the following transacti

Exercise 14-6

Keener Incorporated had the following transactions occur involving current assets and current liabilities during February 2017.

Additional information:

(Round answers to 1 decimal place, e.g. 1.6.)

Current ratio

Acid-test ratio

Feb. 3		Accounts receivable of $14,000 are collected.
7		Equipment is purchased for $27,100 cash.
11		Paid $3,300 for a 1-year insurance policy.
14		Accounts payable of $11,000 are paid.
18		Cash dividends of $5,600 are declared.

Answer

Compute the current ratio as of the beginning of the month and after each transaction.

As of February 1, 2017, current assets were $132000, and current liabilities were $49,600.

Current ratio = Current Assets/Current Liabilities = 132000/49,600 = 2.66

Acid -test ratio = (Current Asset – Inventory) ÷Current Liability = (132000-14000)/49,600

	Current Ratio	Acid -Test Ratio
Feb 1	2.66	2.38
Feb 3	2.65	2.38
Feb 7	=132000-27100/49,600= 2.11	1.83
Feb11	2.11( no impact of prepaid expense) as one side cash reduces and a new current asset gets created)	1.83
Feb 14	= (132000-27100-11000)/(49600-11000) = 93900/38600 = 2.43	=79900/38600=2.06
Feb 18	= 93900/38600+5600= 2.12( dividend are declared only not yet paid so no impact om cash and equity part). But current liabilty will increase as dividends are payable	=79900/44200= 1.80