Problem $14-14($Static$)$ Effects of Transactions on Various Ratios $[$LO$14-2]$

Denna Company$$s working capital accounts at the beginning of the year follow:

Cash $ $50,000$

Marketable securities $ $30,000$

Accounts receivable, net $ $200,000$

Inventory $ $210,000$

Prepaid expenses $ $10,000$

Accounts payable $ $150,000$

Notes due within one year $ $30,000$

Accrued liabilities $ $20,000$

During the year, Denna Company completed the following transactions:

Paid a cash dividend previously declared, $$12,000.$

Issued additional shares of common stock for cash, $$100,000.$

Sold inventory costing $$50,000$ for $$80,000,$ on account.

Wrote off uncollectible accounts in the amount of $$10,000,$ reducing the accounts receivable balance accordingly.

Declared a cash dividend, $$15,000.$

Paid accounts payable, $$50,000.$

Borrowed cash on a short$-$term note with the bank, $$35,000.$

Sold inventory costing $$15,000$ for $$10,000$ cash.

Purchased inventory on account, $$60,000.$

Paid off all short$-$term notes due, $$30,000.$

Purchased equipment for cash, $$15,000.$

Sold marketable securities costing $$18,000$ for cash, $$15,000.$

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

Required:

$1.$ Compute the following amounts and ratios as of the beginning of the year:

a$.$ Working capital.

b$.$ Current ratio.

c$.$ Acid$-$test ratio.

$2.$ 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. Consider each transaction independently and indicate their effects as compared to the ratios and amounts at the beginning of the period