Question
Question 6 [18 points] Three commonly used measures of liquidity are the working capital, current ratio and the acid-test ratio. For each of the
Question 6 [18 points] Three commonly used measures of liquidity are the working capital, current ratio and the acid-test ratio. For each of the following transactions, determine whether the measure will increase, decrease, or not change. Assume that both ratios are higher than 1 and that working capital is positive. a. Dividends for $80,000 that were previously declared are now paid in cash to the shareholders. b. Depreciation expense is recorded as an adjusting entry c. The accounts receivable ending balance for $350,000 includes one large credit balance for $110,000 for a customer. The accountant will report the credit balance as a current liability d. A customer makes a partial payment of $35,000 towards the amount owed on his accounts receivable. e. Merchandise costing $110,000, was sold on account for $140,000. The company uses the perpetual inventory system. f. The company purchased $90,000 of inventory on account. Working capital Current raso Acid-testrao (a) (Select one) (b) (Select one) (c) (Select one) (d) (Select one) (e) (Select one) (Select one) (Select one) (Select one) (Select one) (Select one) (Select one) (Select one) (Select one) (Select one) (Select one) (1) (Select one) (Select one) (Select one)
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