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Homework answers / question archive / Determine the cost of goods sold of a firm with the financial data given below: Current Ratio 2
Determine the cost of goods sold of a firm with the financial data given below:
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Current Ratio |
2.4 to 1 |
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Acid-Test Ratio* |
2.1 to 1 |
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Current Liabilities |
$400,000 |
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Inventory Turnover (using ending inventory) |
4 times |
*Assume that the acid test ratio is computed as follows:
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Current Assets - Inventory/Current Liabilities |
2. Decort Company's working capital accounts at December 31, 2018, are given below:
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Current Assets: |
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Cash |
$100,000 |
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Marketable Securities |
50,000 |
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Accounts Receivable |
$250,000 |
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Less Allowance for Doubtful Accounts |
(20,000) |
230,000 |
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Inventory, Lifo |
300,000 |
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Prepaid |
8,000 |
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Total Current Assets |
$688,000 |
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Current Liabilities: |
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Accounts Payable |
$200,000 |
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Notes Payable |
50,000 |
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Taxes Payable |
10,000 |
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Accrued Liabilities |
30,000 |
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Total Current Liabilities |
$290,000 |
During 2019, DeCort Company completed the following transactions:
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a. |
Purchased fixed assets for cash, $20,000. |
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b. |
Exchanged DeCort Company common stock for land. Estimated value of transaction, $80,000. |
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c. |
Payment of $40,000 on short-term notes payable. |
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d. |
Sold marketable securities costing $20,000 for $25,000 cash. |
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e. |
Sold DeCort Company common stock for $70,000. |
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f. |
Wrote off an account receivable in the amount of $20,000. |
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g. |
Paid a cash dividend in the amount of $5,000 |
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h. |
Sold inventory costing $10,000 for $15,000 cash. |
|
i. |
Paid accounts payable in the amount of $20,000. |
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j. |
Sold marketable securities costing $20,000 for $20,000 cash. |
Required:
|
a. |
Compute the following as of December 31, 2018: |
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1. |
working capital |
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2. |
current ratio |
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3. |
acid-test ratio (conservative) |
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4. |
cash ratio |
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(These ratios are to be computed using only the December 31, 2008 data.) |
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b. |
For 2019, indicate the effect of each of the transactions given on working capital, current ratio, acid-test ratio, and cash ratio. Give the effect in terms of +, - , or none. Consider each transaction to be the first transaction of the year. Assume at the start of the year that the current ratio is over 2 to 1, the acid-test ratio is over 1 to 1, and the cash ratio is less than 1 to 1. |
Format:
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The Effect On |
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Acid- |
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Working |
Current |
Test |
Cash |
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Transaction |
Capital |
Ratio |
Ratio |
Ratio |
Ans-1
Current Asset Value Calculation:
Current Asset / Current Liabilities=2.4 ,or
Current Assets = 2.4*Current Liabilities , or
Current Assets = 2.4*400000 , or
Current Assets = 960000
Closing Inventory Value Calculation:
Acid Test ratio = 2.1/1 or,
(Current Asset-Inventory)/Current Liabilities = 2.1 , or
(960000 - Inventory) / 400000 = 2.1 , or
Inventory = 960000-400000*2.1 , or
Inventory = 120000
Cost of Goods Sold Calculation:
Inventory Turnover = Cost of Goods Sold/Inventory , or
4=CoGS/120000 , or
CoGS= 4*120000 , or
CoGS = 480000
Ans-2-(a)
Year-2018 ratios:
Working Capital = Current Assets - Current Liability = 688000 - 290000 = 398000
Current Ratio = Current Asset/Current Liabilities = 688000 / 290000 = 2.37
Acid Test Ratio = (Current Asset-Inventory)/Current Liabilities = (688000-300000)/290000 = 1.34
Cash Ratio = (Cash+Marketable Securities)/Current Liabilities = (100000+50000)/290000=0.53
Ans-2-(b)
The impact will be as hereunder:
please see the attached file for the complete solution.
