Selected balance sheet accounts for Tibbetts Company on September 30, 2019, are as follows: Cash $ 48,000 Marketable securities 135,000 Accounts receivable, net 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. Summarized here are the transactions/events that took place during the fiscal year ended September 30, 2020. Prepare journal entries for the below transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 1. Credit sales for the year amounted to $360,000. The cost of goods sold was $234,000. 2. Collected accounts receivable, $378,000. 3. Purchased inventory on account, $252,000. 4. Issued 750 shares of common stock for $27 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.
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
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.
Summarized here are the transactions/events that took place during the fiscal year ended September 30, 2020. Prepare journal entries for the below transactions. (If no entry is required for a transaction/event, select "No
1. Credit sales for the year amounted to $360,000. The cost of goods sold was $234,000.
2. Collected accounts receivable, $378,000.
3. Purchased inventory on account, $252,000.
4. Issued 750 shares of common stock for $27 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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