FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Problem 11-12 (Algo) Effect of transactions on liquidity measures LO 1
Selected
| Cash | $ | 48,000 | |
| Marketable securities | 135,000 | ||
| 165,000 | |||
| Inventory | 187,500 | ||
| Prepaid expenses | 21,000 | ||
| Total current assets | $ | 556,500 | |
| Accounts payable | $ | 108,000 | |
| Other accrued liabilities | 26,400 | ||
| Short-term debt | 48,000 | ||
| Total current liabilities | $ | 182,400 | |
Required:
- Calculate the
working capital ,current ratio , and acid-test ratio for Tibbetts Company as of September 30, 2019. - Summarized here are the transactions/events that took place during the fiscal year ended September 30, 2020. Prepare
journal entries for the below transactions and Indicate the effect of each item on Tibbetts Company's working capital, current ratio, and acid-test ratio. Use + for increase, − for decrease, and (NE) for no effect.- Credit sales for the year amounted to $360,000. The cost of goods sold was $234,000.
- Collected accounts receivable, $378,000.
- Purchased inventory on account, $252,000.
- Issued 750 shares of common stock for $27 per share.
- Wrote off $10,500 of uncollectible accounts using the allowance for
bad debts. - Declared and paid a cash dividend, $30,000.
- Sold marketable securities costing $39,000 for $46,500 in cash.
- Recorded insurance expense for the year, $18,000. The premium for the policy was paid in June 2019.
- Borrowed cash on a short-term bank loan, $15,000.
- Repaid principal of $60,000 and interest of $4,500 on a long-term bank loan.
Transcribed Image Text:Indicate the effect of each item on Tibbetts Company's working capital, current ratio, and acid-test ratio. Use + for increase, - for deci
(NE) for no effect.
Working
Capital
Current
Acid-Test
Ratio
Transaction/Event
Ratio
0. Example: Paid accounts payable, $585,000.
1. Credit sales for the year amounted to $360,000. The cost of goods sold was $234,000.
NE
+
2. Collected accounts receivable, $378,000.
3. Purchased inventory on account, $252,000.
4. Issued 250 shares of common stock for $54 per share.
5. Wrote off $10,500 of uncollectible accounts using the allowance for bad debts.
6. Declared and paid a cash dividend, $30,000.
7. Sold marketable securities costing $39,000 for $46,500 in cash.
8. Recorded insurance expense for the year, $18,000. The premium for the policy was paid in June 2019.
9. Borrowed cash on a short-term bank loan, $15,000.
10. Repaid principal of $60,000 and interest of $4,500 on a long-term bank loan.
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