Problem 11.12

LO 1

Effect of transactions on liquidity measures Selected balance sheet accounts for Tibbetts Company on September 30, 2019, are as follows:

Cash

$ 48,000

Marketable securities

87,000

Accounts receivable, net

129,000

Inventory

135,000

Prepaid expenses

21,000

Total current assets

$420,000

Accounts payable

$147,000

Other accrued liabilities

33,000

Short-term debt

60,000

Total current liabilities

$240,000

Required:

Calculate the working capital, current ratio, and acid-test ratio for Tibbetts Company as of September 30, 2019.

Summarized here are the transactions/events that took place during the fiscal year ended September 30, 2020. Indicate the effect of each item on Tibbetts Companys working capital, current ratio, and acid-test ratio. Use + for increase, for decrease, and (NE) for no effect. [Hint: It may be helpful to use the horizontal model or to record the journal entry(ies) for each item before considering the effects on liquidity measures.]

Transaction/Event

Working Capital

Current Ratio

Acid-Test Ratio

0. Example: Paid accounts payable, $585,000.

NE

+

+

1. Credit sales for the year amounted to $360,000. The cost of goods sold was $234,000.

2. Collected accounts receivable, $378,000.

3. Purchased inventory on account, $252,000.

4. Issued 250 shares of common stock for $54 per share.

5. Wrote off $10,500 of uncollectible accounts using the allowance for bad debts.

6. Declared and paid a cash dividend, $30,000.

7. Sold marketable securities costing $39,000 for $46,500 in cash.

8. Recorded insurance expense for the year, $18,000. The premium for the policy was paid in June 2019.

9. Borrowed cash on a short-term bank loan, $15,000.

10. Repaid principal of $60,000 and interest of $4,500 on a long-term bank loan.