Plum Corporation began the month of May with $1,500,000 of current assets, a current ratio of 1.90:1, and an acid-test ratio of 1.30:1. During the month, it completed the following transactions (the company uses a perpetual inventory system). May 2 Purchased $75,000 of merchandise inventory on credit. May 8 Sold merchandise inventory that cost $55,000 for $125,000 cash. May 10 Collected $25,000 cash on an account receivable. May 15 Paid $31,500 cash to settle an account payable. May 17 Wrote off a $5,000 bad debt against the Allowance for Doubtful Accounts account. May 22 Declared a $1 per share cash dividend on its 65,000 shares of outstanding common stock. May 26 Paid the dividend declared on May 22. May 27 Borrowed $115,000 cash by giving the bank a 30-day, 10% note. May 28 Borrowed $145,000 cash by signing a long-term secured note. May 29 Used the $260,000 cash proceeds from the notes to buy new machinery. Required: Complete the table below showing Plum's (1) current ratio, (2) acid-test ratio, and (3) working capital after each transaction. Note: Do not round intermediate calculations. Round your ratios to 2 decimal places and the working capitals to nearest dollar amount. Amounts to be deducted should be indicated with a minus sign. Transaction Beginning Current Assets Quick Assets Current Liabilities $ 1,500,000 $ 1,026,316 $ 789,474 1.90 Current Ratio Acid-Test Ratio Working Capital 1.30 $ 710,526 May 2 May 2 Balance after May 2 1,500,000 May 8 May 8 Balance after May 8 May 10 May 10 Balance after May 10 May 15 May 15 Balance after May 15 May 17 May 17 789,474
Plum Corporation began the month of May with $1,500,000 of current assets, a current ratio of 1.90:1, and an acid-test ratio of 1.30:1. During the month, it completed the following transactions (the company uses a perpetual inventory system). May 2 Purchased $75,000 of merchandise inventory on credit. May 8 Sold merchandise inventory that cost $55,000 for $125,000 cash. May 10 Collected $25,000 cash on an account receivable. May 15 Paid $31,500 cash to settle an account payable. May 17 Wrote off a $5,000 bad debt against the Allowance for Doubtful Accounts account. May 22 Declared a $1 per share cash dividend on its 65,000 shares of outstanding common stock. May 26 Paid the dividend declared on May 22. May 27 Borrowed $115,000 cash by giving the bank a 30-day, 10% note. May 28 Borrowed $145,000 cash by signing a long-term secured note. May 29 Used the $260,000 cash proceeds from the notes to buy new machinery. Required: Complete the table below showing Plum's (1) current ratio, (2) acid-test ratio, and (3) working capital after each transaction. Note: Do not round intermediate calculations. Round your ratios to 2 decimal places and the working capitals to nearest dollar amount. Amounts to be deducted should be indicated with a minus sign. Transaction Beginning Current Assets Quick Assets Current Liabilities $ 1,500,000 $ 1,026,316 $ 789,474 1.90 Current Ratio Acid-Test Ratio Working Capital 1.30 $ 710,526 May 2 May 2 Balance after May 2 1,500,000 May 8 May 8 Balance after May 8 May 10 May 10 Balance after May 10 May 15 May 15 Balance after May 15 May 17 May 17 789,474
Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment
Section: Chapter Questions
Problem 1CE
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Transcribed Image Text:Plum Corporation began the month of May with $1,500,000 of current assets, a current ratio of 1.90:1, and an acid-test ratio of 1.30:1.
During the month, it completed the following transactions (the company uses a perpetual inventory system).
May 2 Purchased $75,000 of merchandise inventory on credit.
May 8 Sold merchandise inventory that cost $55,000 for $125,000 cash.
May 10 Collected $25,000 cash on an account receivable.
May 15 Paid $31,500 cash to settle an account payable.
May 17 Wrote off a $5,000 bad debt against the Allowance for Doubtful Accounts account.
May 22 Declared a $1 per share cash dividend on its 65,000 shares of outstanding common stock.
May 26 Paid the dividend declared on May 22.
May 27 Borrowed $115,000 cash by giving the bank a 30-day, 10% note.
May 28 Borrowed $145,000 cash by signing a long-term secured note.
May 29 Used the $260,000 cash proceeds from the notes to buy new machinery.
Required:
Complete the table below showing Plum's
(1) current ratio,
(2) acid-test ratio, and
(3) working capital after each transaction.
Note: Do not round intermediate calculations. Round your ratios to 2 decimal places and the working capitals to nearest dollar
amount. Amounts to be deducted should be indicated with a minus sign.
Transaction
Beginning
Current Assets Quick Assets Current Liabilities
$
1,500,000 $ 1,026,316 $
789,474
1.90
Current Ratio Acid-Test Ratio Working Capital
1.30 $
710,526
May 2
May 2
Balance after May 2
1,500,000
May 8
May 8
Balance after May 8
May 10
May 10
Balance after May 10
May 15
May 15
Balance after May 15
May 17
May 17
789,474
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