Problem 13-14A Effects of Transactions on Various Ratios [LO13-2]

Denna Companys working capital accounts at the beginning of the year follow:

Cash	$	64,000
Marketable securities	$	27,400
Accounts receivable, net	$	335,600
Inventory	$	444,400
Prepaid expenses	$	6,800
Accounts payable	$	189,200
Notes due within one year	$	88,000
Accrued liabilities	$	54,600

During the year, Denna Company completed the following transactions:

x.	Paid a cash dividend previously declared, $24,000.
a.	Issued additional shares of common stock for cash, $188,000.
b.	Sold inventory costing $65,200 for $94,000, on account.
c.	Wrote off uncollectible accounts in the amount of $7,600, reducing the accounts receivable balance accordingly.
d.	Declared a cash dividend, $24,000.
e.	Paid accounts payable, $90,400.
f.	Borrowed cash on a short-term note with the bank, $51,000.
g.	Sold inventory costing $19,620 for $13,080 cash.
h.	Purchased inventory on account, $45,500.
i.	Paid off all short-term notes due, $139,000.
j.	Purchased equipment for cash, $70,200.
k.	Sold marketable securities costing $17,400 for cash, $14,500.
l.	Collected cash on accounts receivable, $73,400.

Required:

1.	Compute the following amounts and ratios as of the beginning of the year: (Round your ratios to 2 decimal places.)

working capital
current ratio
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.

			the effect on
	transaction	working capital	currect ration	acid-test ratio
x	paid cash dividend previously declared	none	increase	increase
a	issued capital stock for cash
b	sold inventory at a gain
c	wrote off uncollectible accounts
d	declared cash dividend
e	paid accounts payable
f	borrowed on short term note
g	sold inventory at a loss
h	purchased inventory on account
i	paid short term note due
j	purchased equipment for cash
k	sold marketable securities at a loss
l	collected accounts receivable