Effect of Transactions on Working Capital, Current Ratio, and Quick Ratio

The following account balances are taken from the records of Veriform, Inc.:

Cash	$65,000
Short-term investments	52,000
Accounts receivable	74,000
Inventory	100,000
Prepaid insurance	10,000
Accounts payable	75,000
Taxes payable	25,000
Salaries and wages payable	40,000
Short-term loans payable	210,000

Required:

1. Use the information provided to compute the amount of working capital and Veriform's current and quick ratios (round to three decimal points). Use the minus sign to indicate a negative working capital.

Working capital	$
Current ratio		to 1
Quick ratio		to 1

2. Determine the effect that each of the following transactions will have on Veriform's working capital, current ratio, and quick ratio by recalculating each and then indicating whether the measure is increased, decreased, or not affected by the transaction. Consider each transaction independently; that is, assume that it is the only transaction that takes place.

Use the minus sign to indicate a negative working capital for amounts in column one. For the ratios, round to three decimal places and enter amounts as positive numbers. If an amount is zero, enter "0"

Transaction	Working Capital	Effect on Working Capital	Current Ratio	Effect on Current Ratio	Quick Ratio	Effect on Quick Ratio
a. Purchased inventory on account, $12,000	$	- Select your answer -decreaseincreasenoneItem 5	to 1	- Select your answer -decreaseincreasenoneItem 7	to 1	- Select your answer -decreaseincreasenoneItem 9
b. Purchased inventory for cash, $12,000	$	- Select your answer -decreaseincreasenoneItem 11	to 1	- Select your answer -decreaseincreasenoneItem 13	to 1	- Select your answer -decreaseincreasenoneItem 15
c. Paid suppliers on account, $30,000	$	- Select your answer -decreaseincreasenoneItem 17	to 1	- Select your answer -decreaseincreasenoneItem 19	to 1	- Select your answer -decreaseincreasenoneItem 21
d. Received cash on account, $40,000	$	- Select your answer -decreaseincreasenoneItem 23	to 1	- Select your answer -decreaseincreasenoneItem 25	to 1	- Select your answer -decreaseincreasenoneItem 27
e. Paid insurance for next year, $20,000	$	- Select your answer -decreaseincreasenoneItem 29	to 1	- Select your answer -decreaseincreasenoneItem 31	to 1	- Select your answer -decreaseincreasenoneItem 33
f. Made sales on account, $65,000	$	- Select your answer -decreaseincreasenoneItem 35	to 1	- Select your answer -decreaseincreasenoneItem 37	to 1	- Select your answer -decreaseincreasenoneItem 39
g. Repaid short-term loans at bank, $25,000	$	- Select your answer -decreaseincreasenoneItem 41	to 1	- Select your answer -decreaseincreasenoneItem 43	to 1	- Select your answer -decreaseincreasenoneItem 45
h. Borrowed $40,000 at bank for 90 days	$	- Select your answer -decreaseincreasenoneItem 47	to 1	- Select your answer -decreaseincreasenoneItem 49	to 1	- Select your answer -decreaseincreasenoneItem 51
i. Declared and paid $45,000 cash dividend	$	- Select your answer -decreaseincreasenoneItem 53	to 1	- Select your answer -decreaseincreasenoneItem 55	to 1	- Select your answer -decreaseincreasenoneItem 57
j. Purchased $20,000 of short-term investments	$	- Select your answer -decreaseincreasenoneItem 59	to 1	- Select your answer -decreaseincreasenoneItem 61	to 1	- Select your answer -decreaseincreasenoneItem 63
k. Paid $30,000 in salaries	$	- Select your answer -decreaseincreasenoneItem 65	to 1	- Select your answer -decreaseincreasenoneItem 67	to 1	- Select your answer -decreaseincreasenoneItem 69
l. Accrued additional $15,000 in taxes	$	- Select your answer -decreaseincreasenoneItem 71	to 1	- Select your answer -decreaseincreasenoneItem 73	to 1	- Select your answer -decreaseincreasenone Item 75