Question

PROBLEM 15-14 Effects of Transactions on Various Ratios (L015-2] 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 ... $50,000 $30,000 $200,000 $210,000 $10,000 $150,000 $30,000 $20,000 During the year, Denna Company completed the following transactions: X. Paid a cash dividend previously declared, $12,000. a. Issued additional shares of common stock for cash, $100,000. b. Sold inventory costing $50,000 for $80,000, on account. c. Wrote off uncollectible accounts in the amount of $10,000, reducing the accounts receivable balance accordingly. d. Declared a cash dividend, $15,000. e. Paid accounts payable, $50,000. f. Borrowed cash on a short-term note with the bank, $35,000. g. Sold inventory costing $15,000 for $10,000 cash. h. Purchased inventory on account, $60,000. i. Paid off all short-term notes due, $30,000. j. Purchased equipment for cash, $15,000. k. Sold marketable securities costing $18,000 for cash, $15,000. 1. Collected cash on accounts receivable, $80,000. Required: 1. Compute the following amounts and ratios as of the beginning of the year: a. Working capital. b. Current ratio. c. Acid-test ratio. 2. Indicate the effect of each of the transactions given above on working capital, the current ratio, and the acid-test ratio. Give the effect in terms of increase, decrease, or none. Item (x) is given below as an example of the format to use: The Effect on Working Capital Current Ratio Acid-Test Ratio Transaction (x) Paid a cash dividend previously declared ........ None Increase Increase