Denna Companys working capital accounts at the beginning of

Denna Company\'s working capital accounts at the beginning of the year follow: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Accounts payable Notes due within one year Accrued liabilities $ 81,000 $ 24,400 $376,400 $ 488,600 $ 15,700 $ 219,800 $ 122,000 $ 69,900 During the year, Denna Company completed the following transactions x. Paid a cash dividend previously declared, $41,000 a. Issued additional shares of common stock for cash, $222,000 b. Sold inventory costing $78,800 for $111,000, on account. c. Wrote off uncollectible accounts in the amount of $14,400, reducing the accounts receivable balance accordingly d. Declared a cash dividend, $41,000 e. Paid accounts payable, $117,600 f. Borrowed cash on a short-term note with the bank, $76,500 g. Sold inventory costing $17,520 for $11,680 cash. h. Purchased inventory on account, $58,250 i. Paid off all short-term notes due, $198,500 j. Purchased equipment for cash, $83,800 k. Sold marketable securities costing $14,400 for cash, $12,000. I. Collected cash on accounts receivable, $92,100 Required: 1. Compute the following amounts and ratios as of the beginning of the year: (Round your ratios to 2 decimal places.) a. Working capital b. Current ratio c. Acid-test ratio

Solution

1

working Capital

Current Assets

-

Current Liabilities

working Capital

$        986,100.00

-

$                 411,700.00

$                                    574,400.00

Current Assets- ($ 81000+ 24400+376400+488600+15700)

Current Liabilities--($ 219800+122000+69900)

2

Current ratio

   Numerator

/

   denominator

Inventory Turnover

Current Assets

/

Current Liabilities

Inventory Turnover

$        986,100.00

/

$                 411,700.00

2.40

times

3

Acid test ratio

   Numerator

/

   denominator

Acid test ratio

Liquid Assets

/

Current liabilities

Acid test ratio

$        481,800.00

$                 411,700.00

1.17

to 1

Quick assets- Cash +Accounts Receivables and short term Investments

Effect of transactions

Working Capital

Current Ratio

Acid-Test ratio

a

Increase

Increase

Increase

b

Increase

Increase

Increase

c

Decrease

Decrease

Decrease

d

Decrease

Decrease

None

e

None

Increase

Increase

f

None

Decrease

Decrease

g

Increase

Increase

Increase

h

None

Decrease

Decrease

i

None

Increase

Increase

j

Decrease

Decrease

Decrease

k

Decrease

Decrease

Decrease

l

None

None

None

Working note

Current Assets

Current Liabilities

Quick assets

Working capital

Current ratio

Quick ratio

Balance

$      986,100.00

$            411,700.00

$    481,800.00

$       574,400.00

2.40

1.17

A

$      222,000.00

$    222,000.00

Balance

$ 1,208,100.00

$            411,700.00

$    703,800.00

$       796,400.00

2.93

1.71

B

$        32,200.00

$      32,200.00

Balance

$ 1,240,300.00

$            411,700.00

$    736,000.00

$       828,600.00

3.01

1.79

C

$      (14,400.00)

$    (14,400.00)

Balance

$ 1,225,900.00

$            411,700.00

$    721,600.00

$       814,200.00

2.98

1.75

D

$      (41,000.00)

Balance

$ 1,184,900.00

$           411,700.00

$    721,600.00

$       773,200.00

2.88

1.75

E

$   (117,600.00)

$          (117,600.00)

$ (117,600.00)

Balance

$ 1,067,300.00

$            294,100.00

$    604,000.00

$       773,200.00

3.63

2.05

F

$        76,500.00

$              76,500.00

$      76,500.00

Balance

$ 1,143,800.00

$            370,600.00

$    680,500.00

$       773,200.00

3.09

1.84

G

$          5,840.00

$        5,840.00

Balance

$ 1,149,640.00

$            370,600.00

$    686,340.00

$       779,040.00

3.10

1.85

H

$        58,250.00

$              58,250.00

Balance

$ 1,207,890.00

$            428,850.00

$    686,340.00

$       779,040.00

2.82

1.60

I

$   (198,500.00)

$          (198,500.00)

$ (198,500.00)

Balance

$ 1,009,390.00

$            230,350.00

$    487,840.00

$       779,040.00

4.38

2.12

J

$      (83,800.00)

$    (83,800.00)

Balance

$      925,590.00

$            230,350.00

$    404,040.00

$       695,240.00

4.02

1.75

K

$        (2,400.00)

$      (2,400.00)

Balance

$      923,190.00

$            230,350.00

$    401,640.00

$       692,840.00

4.01

1.74

L

$                       -  

$                              -  

$                     -  

Balance

$      923,190.00

$            230,350.00

$    401,640.00

$       692,840.00

4.01

1.74

1	working Capital
	Current Assets	-	Current Liabilities	working Capital
	$        986,100.00	-	$                 411,700.00	$                                    574,400.00