ACC120 Study Guide - Final Guide: Current Liability, Working Capital, Accounts Receivable

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12 Mar 2019
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BRIEF EXERCISE 4-13
Working capital = Current assets − Current liabilities
Big River: Working capital = $1,000,000 − $900,000 = $100,000
Small Fry: Working capital = $200,000 − $100,000 = $100,000
Current ratio = Current assets ÷ Current liabilities
Big River: Current ratio = $1,000,000 ÷ $900,000 = 1.11:1
Small Fry: Current ratio = $200,000 ÷ $100,000 = 2.00:1
The working capital is the same for both companies but Small
Fry Company’s current ratio is much stronger. The current ratio
is more relevant.
BRIEF EXERCISE 4-14
(a) Working capital = Current assets − Current liabilities
Year 1: $95,000 - $65,000 = $30,000
Year 2: $150,000 - $100,000 = $50,000
Year 3: $200,000 - $95,000 = $105,000
Current ratio = Current assets ÷ Current
liabilities Year 1 = $95,000 ÷ $65,000 = 1.46:1
Year 2 = $150,000 ÷ $100,000 = 1.5:1
Year 3 = $200,000 ÷ $95,000 = 2.11:1
The calculations for Jones Co. show a trend of
improvement in the current ratio, demonstrating increasing
liquidity.
4-18
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BRIEF EXERCISE 4-15
(a)
(1) Working capital = Current assets − Current liabilities
Working capital 2016 = $33,510 − $24,800 = $8,710
Working capital 2017 = $35,100 − $24,460 = $10,640
(2) Current ratio = Current assets ÷ Current liabilities
Current ratio 2016 = $33,510 ÷ $24,800 = 1.35:1
Current ratio 2017 = $35,100 ÷ $24,460 = 1.43:1
(3) Acid-test ratio
= (Cash + Accounts Receivable + Short-term
Investments) ÷ Current liabilities
Acid-test ratio
2016
= $20,430 ÷ $24,800 = 0.82:1
Acid-test ratio
2017
= $22,680 ÷ $24,460 = 0.93:1
(b) All three measures of Drew Co.’s liquidity show
improvement in 2017 compared to 2016.
*BRIEF EXERCISE 4-16
Income Statement
Balance Sheet
Dr.
Cr.
Dr.
Cr.
Totals
75,000
95,500
191,000
170,500
Profit
20,500
20,500
Totals
95,500
95,500
191,000
191,000
Coulombe Company had a profit for 2017. Revenue exceeded
expenses by $20,500, which increased retained earnings.
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*BRIEF EXERCISE 4-17
Income Statement
Balance Sheet
Dr.
Cr.
Dr.
Cr.
Totals
53,875
43,425
55,550
66,000
Loss
10,450
10,450
Totals
53,875
53,875
66,000
66,000
Orange Line Company had a loss for 2017. Expenses exceeded
revenue by $10,450, which decreased retained earnings.
4-20
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Document Summary

Working capital = current assets current liabilities. Big river: working capital = ,000,000 ,000 = ,000. Small fry: working capital = ,000 ,000 = ,000. Current ratio = current assets current liabilities. Big river: current ratio = ,000,000 ,000 = 1. 11:1. Small fry: current ratio = ,000 ,000 = 2. 00:1. The working capital is the same for both companies but small. Brief exercise 4-14 (a) working capital = current assets current liabilities. Current ratio = current assets current liabilities year 1 = ,000 ,000 = 1. 46:1. Year 2 = ,000 ,000 = 1. 5:1. Year 3 = ,000 ,000 = 2. 11:1. The calculations trend of improvement in the current ratio, demonstrating increasing liquidity. for jones co. show a. Brief exercise 4-15 (a) (1) working capital = current assets current liabilities. Working capital 2016 = ,510 ,800 = ,710. Working capital 2017 = ,100 ,460 = ,640 (2) current ratio = current assets current liabilities.

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