An answer key is provided so you can refer it as well as explain to me how to arrive at the correct answer.
2.) For the current ratio, is the $45,000 amount on the numerator accounts receivable or inventory? Can you explain why its one over the other?
3.) How did you find the amount of interest expense and interest payable in the amount of $500?
2. Alpha is concerned about qualifying for a bank loan. Alpha's current ratio must be less than 2.5 and quick ratio less than 1.5 to qualify. Using the trial balance in Part III (previous page), calculate both ratios for Alpha. Warning: Use ending inventory, not beginning inventory. No partial credit for each ratio. You must show your work. Quick Ratio 4 points] 000 -13.01 o,ooo45,00022 S,000 12,00 8,000 -8 |Current Ratio 14 points] 25,00030 195,oo0 75,034 5 - On January 1, Alpha purchased equipment for $40,000, paying $30,000 cash and issuing a 1-year, 5% (annual rate) note. The useful life is 6 years with a $4,000 salvage value. Straight-line depreciation is used. Interest will be paid next year. Alpha has a December 31 year-end. Record the purchase and all AJEs. Use separate entries for the AJEs. 17 points] 3. side Jon I Equipmen+ cosh Notc poycble 6.000 lo, oo O Dec. 3 Depreciotun Evpense Accum De pret If the balance in the supplies account increased during the year, which of the following best explains the adjustment made when converting from cash basis net income to accrual basis net income? Circle the correct a 4. nswer. [7 points s increase is the result of recognizing an expense for accrual basis but not cash basis and, therefore, this increase is s increase is the result of recognizing an expense for accrual basis but not cash basis and, therefore, this increase is basis but not accrual basis and, therefore, this increase is basis but not accrual basis and, therefore, this increase is to be added to the cash basis net income balance to find accrual basis net income. 7 to be subtracted from the cash basis net income balance to find accrual basis net income. C. D. Because this increase is the result of recognizing an expense for cash E None of the above Because this increase is the result of recognizing an expense for cash required to be added to the cash basis net income balance to find accrual basis net income. required to be subtracted from the cash basis net income balance to find accrual basis net income 00. Alpha uses the periodic inventory sysle $ 30,000 45,000 15,000 45,000 90,000 Cash Accounts receivable Supplies Inventory LEquipment Accum depreciation - equipment Accounts payable Salaries payable Utilities payable Income tax payable Common stock Retained earnings Dividends Sales Sales discounts Purchases Purchase discounts Rent expense Salaries expense Depreciation expense Income tax expense Total $ 30,000 40,000 15,000 12,000 8,000o 80,000 28,000 2,000 250,000 6,000 89,000 3,000 25,000 96,000 15,000 8,000 $466,000 $466,000 1.00 Quick Ratio (S30,000 + 45,000) ($40,000 + 15,000 + 12,000 + 8,000) 2. 2.00 Current Ratio ($30,000+45,000+15,000+60,000) (S40,000 + 15,000 + 12,000 + 8,000) = Equipment 40,000 Cash Notes Payable 30,000 10,000 Depreciation Expense 6,000 Accumulated Depreciation 6,000 Interest Expense 500 Interest Payable 500 4. C
