Data pertaining to the liquidity of Dancey Industries Inc. are as follows:
Cash ........................................................................ $560,000
Temporary investments .............................................. 520,000
Accounts and notes receivable (net) ............................... 800,000
Inventories ............................................................. 900,000
Prepaid expenses ...................................................... 100,000
Accounts payable ..................................................... 800,000
Notes payable (short-term) .......................................... 700,000
Accrued expenses .................................................... 300,000
Instructions
1. Compute (a) the working capital, (b) the current ratio, and (c) the quick ratio. Round to one decimal place.
2. List the following captions on a sheet of paper:
Transaction_____ Working Capital_______ Current Ratio______ Quick Ratio
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 above. Round to one decimal place.
a. Sold temporary investments at no gain or loss, $200,000.
b. Paid accounts payable, $400,000.
c. Purchased goods on account, $150,000.
d. Paid notes payable, $380,000.
e. Declared a cash dividend, $220,000.
f. Declared a common share dividend on common shares, $200,000.
g. Borrowed cash from bank on a long-term note, $680,000.
h. Received cash on account, $110,000.
i. Issued additional shares for cash, $1,400,000.
j. Paid cash for prepaid expenses, $50,000.