Managerial Accounting
Managerial Accounting
7th Edition
ISBN: 9781260247886
Author: Wild
Publisher: MCG
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Chapter 13, Problem 3PSB
To determine

Current Ratio:

Current ratio is the ratio which is used to measure a company’s liquidity and it considers current assets and current liabilities.

Acid Test Ratio:

Acid test ratio is a ratio which measures the ability of a company to pay off its current obligations out of near cash or quick assets.

To prepare: Table showing (1) current ratio, (2) acid-test ratio and (3) working capital after each transaction for K Company.

Expert Solution & Answer
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Explanation of Solution

Table presenting current ratio, acid-test ratio and working capital transaction wise:

Transaction Current Assets (CA) ($) Quick Assets (CL) ($) Current Liabilities ($) Current Ratio (1) Acid-Test Ratio (2) Working Capital ($) ( CACL ) (3)
Beginning 300,000 168,000 120,000 2.5 2.4 180,000
June 1 +75,000 -120,000
Balance 345,000 168,000 120,000 2.88 2.4 225,000
June 3 +88,000 -88000
Balance 345,000 168,000 120,000 2.88 1.4 225,000
June 5 150,000 150,000
Balance 495,000 168,000 270,000 1.83 0.62 225,000
June 7 100,000 110,000
Balance 595,000 168,000 380,000 1.57 0.44 215,000
June 10 120,000
Balance 715,000 168,000 380,000 1.88 0.44 335,000
June 12 -275,000
Balance 440,000 168,000 380,000 1.56 0.44 60,000
June 15
Balance 440,000 168,000 380,000 1.56 0.44 60,000
June 19 -5000
Balance 435,000 168,000 380,000 1.14 0.44 55,000
June 22 -12,000 +15000 -12,000
Balance 438,000 168,000 368,000 1.14 0.46 55,000
June 30 -80000
Balance 358,000 168,000 368,000 0.97 0.46 (10,000)
Conclusion

Hence, at the end of June 29 (1) current ratio is 0.97, (2) acid-test ratio is 0.46 and (3) working capital is $(10,000).

Working notes:

Formula to calculate current ratio is,

    Currentratio= Currentassets Currentliabilities

Calculation of current liabilities from current ratio,

    2.5= $300,000 Currentliabilities Curentliabilities= $300,000 2.5 Curentliabilities=$120,000

Formula to calculate acid-test ratio is,

    Acidtestratio= Quickassets Currentliabilities

Calculation of quick assets from acid test ratio,

    1.4= Quickassets $120,000 Quickassets=$120,000×1.4 Quickassets=$168,000

Calculation of current ratio at the end of June 1,

    Currentratio= $345,000 $120,000 =2.88

Calculation of acid-test ratio at the end of June 1,

    Acid-testratio= $168,000 $120,000 =2.4

Calculation of current ratio at the end of June 3,

    Currentratio= $345,000 $120,000 =2.88

Calculation of acid-test ratio at the end of June 3,

    Acid-testratio= $168,000 $120,000 =2.4

Calculation of current ratio at the end of June 5,

    Currentratio= 495,000 $270,000 =1.83

Calculation of acid-test ratio at the end of June 5,

    Acid-testratio= $168,000 $270,000 =0.62

Calculation of current ratio at the end of June 7,

    Currentratio= $595,000 $380,000 =1.57

Calculation of acid-test ratio at the end of June 7,

    Acid-testratio= $168,000 $380,000 =0.44

Calculation of current ratio at the end of June 10,

    Currentratio= $715,000 $380,000 =1.88

Calculation of acid-test ratio at the end of June 10,

    Acid-testratio= $168,000 $380,000 =0.44

Calculation of current ratio at the end of June 12,

    Currentratio= $440,000 $380,000 =1.56

Calculation of acid-test ratio at the end of June 12,

    Acid-testratio= $168,000 $380,000 =0.44

Calculation of current ratio at the end of June 15,

    Currentratio= $440,000 $380,000 =1.56

Calculation of acid-test ratio at the end of June 15,

    Acid-testratio= $168,000 $380,000 =0.44

Calculation of current ratio at the end of June 19,

    Currentratio= $435,000 $380,000 =1.14

Calculation of acid-test ratio at the end of June 19,

    Acid-testratio= $168,000 $380,000 =0.44

Calculation of current ratio at the end of June 22,

    Currentratio= $423,000 $368,000 =1.14

Calculation of acid-test ratio at the end of June 22,

    Acid-testratio= $168,000 $368,000 =0.46

Calculation of current ratio at the end of June 30,

    Currentratio= $358,000 $368,000 =0.97

Calculation of acid-test ratio at the end of June 30,

    Acid-testratio= $168,000 $368,000 =0.46

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Chapter 13 Solutions

Managerial Accounting

Ch. 13 - Prob. 6DQCh. 13 - Prob. 7DQCh. 13 - Prob. 8DQCh. 13 - Prob. 9DQCh. 13 - Prob. 10DQCh. 13 - Prob. 11DQCh. 13 - Prob. 12DQCh. 13 - Where on the income statement does a company...Ch. 13 - Prob. 14DQCh. 13 - Prob. 15DQCh. 13 - Samsung Refer to Samsung’s financial statements in...Ch. 13 - Prob. 17DQCh. 13 - Prob. 1QSCh. 13 - Prob. 2QSCh. 13 - Prob. 3QSCh. 13 - Prob. 4QSCh. 13 - Prob. 5QSCh. 13 - Prob. 6QSCh. 13 - Prob. 7QSCh. 13 - Prob. 8QSCh. 13 - Prob. 9QSCh. 13 - Prob. 10QSCh. 13 - Prob. 11QSCh. 13 - Prob. 12QSCh. 13 - Prob. 13QSCh. 13 - Morgan Company and Parker Company are similar...Ch. 13 - Which of the following gains or losses would...Ch. 13 - Prob. 1ECh. 13 - Prob. 2ECh. 13 - Prob. 3ECh. 13 - Prob. 4ECh. 13 - Prob. 5ECh. 13 - Exercise 13-6 Common-size percents P2 Simon...Ch. 13 - Prob. 7ECh. 13 - Exercise 13-8 Liquidity analysis and...Ch. 13 - Exercise 13-9 Risk and Capital structure analysis...Ch. 13 - Exercise 13-10 Efficiency and Profitability...Ch. 13 - Exercise 13-11 profitability analysis P3 Refer to...Ch. 13 - Prob. 12ECh. 13 - Prob. 13ECh. 13 - Prob. 14ECh. 13 - Prob. 15ECh. 13 - Exercise Interpreting financial ratios Refer to...Ch. 13 - Prob. 17ECh. 13 - Prob. 18ECh. 13 - Prob. 1PSACh. 13 - Prob. 2PSACh. 13 - Prob. 3PSACh. 13 - Problem 13-4A Calculation of financial statement...Ch. 13 - Prob. 5PSACh. 13 - Prob. 6PSACh. 13 - Prob. 1PSBCh. 13 - Prob. 2PSBCh. 13 - Prob. 3PSBCh. 13 - Prob. 4PSBCh. 13 - Prob. 5PSBCh. 13 - Problem 13-6BAIncome statement computations and...Ch. 13 - Use the following selected data from Business...Ch. 13 - Use Apple’s financial statements in Appendix A to...Ch. 13 - Prob. 2AACh. 13 - Prob. 3AACh. 13 - Prob. 1BTNCh. 13 - Prob. 2BTNCh. 13 - Prob. 3BTNCh. 13 - Prob. 4BTNCh. 13 - ENTREPRENEURIAL DECISION A1 P1 P2 P3 BTN 13-7...Ch. 13 - Prob. 6BTN
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