Effects of Transactions on Various Ratios [LO3]

Selected amounts from Reingold Company’s balance sheet from the beginning of the year follow:

During the year, the company completed the following transactions:
x. Purchased i nventory on a ccount, $50,000.

a. Declared a c ash di vidend, $30,000.

b. Paid a ccounts pa yable, $100,000.

c. Collected cash on accounts receivable, $80,000.

d. Purchased e quipment f or c ash, $ 75,000.

e. Paid a cash dividend previously declared, $30,000.

f. Borrowed cash on a short-term note with the bank, $60,000.
g. Sold inventory costing $70,000 for $100,000, on account.
h. Wrote off uncollectible accounts in the amount of $10,000 reducing the accounts receivable balance a ccordingly.

i. Sold marketable securities costing $12,000 for cash, $9,000.
j. Issued additional shares of common stock for cash, $200,000.
k. Paid of f a ll s hort-term not es due , $160,000.
Required:
1. Compute the following amounts and ratios as of the beginning of the year:

a. Working c apital.

b. Current r atio.

c. Acid-test r atio.
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 (x) is given as an example of the format to use:

Transcribed Image Text:

1 Cash A 2 Marketable Securities B $70,000 $12,000 3 Accounts receivable, net $350,000 4 Inventory $460.000 5 Prepaid expenses $8,000 6 Plant and equipment, net $950,000 7 Accounts payable 8 Accrued liabilities 9 Notes due within one year 10 Bonds payable in five years 11 HH Sheet1 Sheetz $140,000 $200,000 $60,000 $100,000