PROBLEM 15–14 Effects of Transactions on Various Ratios [LO3]
Selected amounts from Reingold Company’s balance sheet from the beginning of the year follow:
During the year, the company completed the following transactions:
i. Purchased inventory on account, $50,000.
a. Declared a cash dividend, $30,000.
b. Paid accounts payable, $100,000.
c. Collected cash on accounts receivable, $80,000.
d. Purchased equipment for cash, $75,000.
e. Paid a cash dividend previously declared, $30,000.
f. Borrowed cash on a short-term note with the bank, $60,000.
g. Sold inventory costing $70,000 for $100,000, on account.
h. Wrote off uncollectible accounts in the amount of $10,000 reducing the accounts receivable balance accordingly.
i. Sold marketable securities costing $12,000 for cash, $9,000.
j. Issued additional shares of common stock for cash, $200,000.
k. Paid off all short-term notes due, $160,000.
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 of the format to use:
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