Effect of transactions on liquidity measures
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Selected balance sheet accounts for Tibbets Company on September 30,2008 are as follows;
Cash $32,000
Marketable securities 58,000
Accounts receivable, net 86,000
Inventory 90,000
Prepaid expenses 14,000
Total current assets $280,000
Accounts payable $98,000
Other accrued liabilities 22,000
Short-term debt 40,000
Total current liabilities $160,000
a) Calculate working capital, current ratio, and acid-test ratio for Tibbets Company as of September 30, 2008.
b) Summarized below are transactions/events that took place during the fiscal year ended September 30,2009. Indicate the effect of each item on Tibbets Company working capital, current ratio, and acid-test ratio. Use + for increase, - for decrease, and (NE) for no effect.
Working Capital Current Ratio Acid-Test Ratio
1) Credit sales for the year amounted to $240,000.
The cost of goods sold was $156,000
2) Collected accounts receivable, $252,000
3) Purchased inventory on account, $1680,00
4) Issued 250 shares of common stock for $36 a
share
5) Wrote off $7,000 for uncollectible accounts using the allowance for bad debts
6) Declared and paid cash dividend, $20,000
7) Sold marketable securities costing $26,000 for
$31,000 in cash
8) Recorded insurance expense for the year, $12,000
The premium for the policy was paid in June
2008
9) Borrowed cash on a short-term bank loan,
$10,000
10) Repaid principal of $40,000 and interest of
$3,000 on a long-term bank loan
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This solution is comprised of a detailed explanation to calculate working capital, current ratio, and acid-test ratio for Tibbets Company as of September 30, 2008.
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Selected balance sheet accounts for Tibbets Company on September 30, 2008 are as follows;
Cash $32,000
Marketable securities 58,000
Accounts receivable, net 86,000
Inventory 90,000
Prepaid expenses 14,000
Total current assets $280,000
Accounts payable $98,000
Other accrued liabilities 22,000
Short-term debt 40,000
Total current liabilities $160,000
a) Calculate working capital, current ratio, and acid-test ratio for Tibbets Company as of September 30, 2008.
Working ...
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