Effects of Transactions on Various Ratios
Denna Company's
During the year, Denna Company completed the following transactions:
Ex. Paid a cash dividend previously declared, $12,000.
a. Issued additional shares of common stock for cash, $100,000.
b. Sold inventory costing $50,000 for $80,000, on account.
c. Wrote off uncollectible accounts in the amount of $10,000, reducing the
d. Declared a cash dividend, $15,000.
e. Paid accounts payable, $50,000.
f. Borrowed cash on a short-term note with the bank, $35,000.
g. Sold inventory costing $15,000 for $10,000 cash.
h. Purchased inventory on account, $60,000.
i. Paid off all short-term notes due, $30,000.
j. Purchased equipment for cash, $15,000.
k. Sold marketable securities costing $18,000 for cash, $15,000.
l. Collected cash on accounts receivable, $80,000.
Required:
1. Compute the following amounts and ratios as of the beginning of the year:
a. Working capital.
b.
c. Acid-test ratio.
2. Indicate the effect of each of the transactions given above on working capital, the current ratio, and the acid-test ratio. Give the effect in terms of increase, decrease, or none. Item Ex is given below as an example of the format to use:
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