Fundamentals of Financial Accounting
5th Edition
ISBN: 9780078025914
Author: Fred Phillips Associate Professor, Robert Libby, Patricia Libby
Publisher: McGraw-Hill Education
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Question
Chapter 2, Problem 2.25ME
To determine
Whether Company B’s current ratio is increased or decreased after considering the given transaction.
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Students have asked these similar questions
Current assets for JC Inc. totalled $32,571, and the current ratio was 1.41. Assume that the following transactions were completed:
(1) Purchased merchandise for $5,800 on short-term credit.
(2) Purchased a delivery truck for $10,000-paid $2,890 cash and signed a two-year interest-bearing note for the balance.
Required:
1. Determine without computations if the current ratio will increase, decrease, or remain unchanged after each transaction.
Transaction (1)
Transaction (2)
Impact on Current Ratio
2. Compute the current ratio after each transaction. (Round the final answers to 2 decimal places.)
Transaction (1)
Transaction (2)
Current Ratio
Effect of Transactions on Current Position Analysis
Data pertaining to the current position of Forte Company follow:
Cash
$412,500
Marketable securities
187,500
Accounts and notes receivable (net)
300,000
Inventories
700,000
Prepaid expenses
50,000
Accounts payable
200,000
Notes payable (short-term)
250,000
Accrued expenses
300,000
Required:
1. Compute (a) the working capital, (b) the current ratio, and (c) the quick ratio. Round ratios to one decimal place.
a. Working capital
900,000
b. Current ratio
2.2
C. Quick ratio
1.2
2. Compute the working capital, the current ratio, and the quick ratio after each of the following transactions and record the results in the appropriate
columns. Consider each transaction separately and assume that only that transaction affects the data given. Round ratios to one decimal place.
Transaction
Working Capital
Current Ratio
Quick Ratio
a. Sold marketable securities at no gain or loss, $70,000.
Margaret O'Flaherty, a portfolio manager for MCF Investments, is considering investing in Alpine Chemical 7% bonds, which mature in
10 years. She asks you to analyze the company to determine the riskiness of the bonds.
Alpine Chemical Company Financial Statements
Years Ended December 31,
($ in millions)
20X1
20X2
20X3
20X4
20X5
20X6
Assets
Cash
$ 55
$
1,637
2,021
190
$
2,143
1,293
157
249
$
1,394
1,258
3,493
1,322
Accounts receivable
3,451
1,643
2,087
Inventories
945
Other current assets
17
27
55
393
33
171
5,097
6,181
Current assets
3,114
5,038
2,543
2,495
3,986
5,757
3,138
3,865
2,707
5,619
2,841
2,778
5,265
4,650
2,177
2,473
Gross fixed assets
7,187
3,893
3,465
2,716
Less: Accumulated depreciation
Net fixed assets
2,619
3,294
Total assets
$6,338
$5,609
$5,485
$6,605
$7,813
$8,559
Liabilities and net worth
Notes payable
Accounts payable
$1,300
338
$
525
2$
750
$1,750
$1,900
673
638
681
743
978
Accrued liabilities
303
172
359
359
483
761
Current liabilities
1,501
1,985
1,997
1,457…
Chapter 2 Solutions
Fundamentals of Financial Accounting
Ch. 2 - Define the following: a. Asset b. Current asset c....Ch. 2 - Define a transaction anti give an example of each...Ch. 2 - For accounting purposes, what is an account?...Ch. 2 - What is the basic accounting equation?Ch. 2 - Prob. 5QCh. 2 - Prob. 6QCh. 2 - Prob. 7QCh. 2 - What is a journal entry? What is the typical...Ch. 2 - What is a T-account? What is its purpose?Ch. 2 - Prob. 10Q
Ch. 2 - Prob. 11QCh. 2 - Which of the following is not an asset account? a....Ch. 2 - Which of the following statements describe...Ch. 2 - Total assets on a balance sheet prepared on any...Ch. 2 - The duality of effects can best be described as...Ch. 2 - The T-account is used to summarize which of the...Ch. 2 - Prob. 6MCCh. 2 - A company was recently formed with 50,000 cash...Ch. 2 - Which of the following statements would be...Ch. 2 - Prob. 9MCCh. 2 - Prob. 10MCCh. 2 - Prob. 2.1MECh. 2 - Prob. 2.2MECh. 2 - Matching Terms with Definitions Match each term...Ch. 2 - Prob. 2.4MECh. 2 - Prob. 2.5MECh. 2 - Prob. 2.6MECh. 2 - Prob. 2.7MECh. 2 - Identifying Events as Accounting Transactions Half...Ch. 2 - Determining Financial Statement Effects of Several...Ch. 2 - Preparing Journal Entries For each of the...Ch. 2 - Posting to T-Accounts For each of the transactions...Ch. 2 - Reporting a Classified Balance Sheet Given the...Ch. 2 - Prob. 2.13MECh. 2 - Prob. 2.14MECh. 2 - Identifying Transactions and Preparing Journal...Ch. 2 - Prob. 2.16MECh. 2 - Prob. 2.17MECh. 2 - Prob. 2.18MECh. 2 - Prob. 2.19MECh. 2 - Prob. 2.20MECh. 2 - Prob. 2.21MECh. 2 - Prob. 2.22MECh. 2 - Prob. 2.23MECh. 2 - Prob. 2.24MECh. 2 - Prob. 2.25MECh. 2 - Prob. 2.1ECh. 2 - Prob. 2.2ECh. 2 - Classifying Accounts and Their Usual Balances As...Ch. 2 - Determining Financial Statement Effects of Several...Ch. 2 - Prob. 2.5ECh. 2 - Recording Journal Entries Refer to E2-4. Required:...Ch. 2 - Prob. 2.7ECh. 2 - Analyzing the Effects of Transactions in...Ch. 2 - Inferring Investing and Financing Transactions and...Ch. 2 - Analyzing Accounting Equation Effects, Recording...Ch. 2 - Recording Journal Entries and Preparing a...Ch. 2 - Analyzing the Effects of Transactions Using...Ch. 2 - Explaining the Effects of Transactions on Balance...Ch. 2 - Prob. 2.14ECh. 2 - Prob. 2.15ECh. 2 - Determining Financial Statement Effects of Various...Ch. 2 - Recording Transactions (in a Journal and...Ch. 2 - Recording Transactions (in a Journal and...Ch. 2 - Determining Financial Statement Effects of Various...Ch. 2 - Recording Transactions (in a Journal and...Ch. 2 - Recording Transactions (in a Journal and...Ch. 2 - Determining Financial Statement Effects of Various...Ch. 2 - Prob. 2.2PBCh. 2 - Prob. 2.3PBCh. 2 - Prob. 2.1SDCCh. 2 - Prob. 2.2SDCCh. 2 - Prob. 2.4SDCCh. 2 - Prob. 2.5SDCCh. 2 - Accounting for the Establishment of a Business...
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