Current Ratio

2.4 to 1

Acid-Test Ratio*

2.1 to 1

Current Liabilities

$400,000

Inventory Turnover (using ending inventory)

4 times

Current Assets - Inventory/Current Liabilities

Current Assets:

   Cash

$100,000

   Marketable Securities

50,000

   Accounts Receivable

$250,000

   Less Allowance for Doubtful Accounts

(20,000)

230,000

   Inventory, Lifo

300,000

   Prepaid

   8,000

   Total Current Assets

$688,000

Current Liabilities:

   Accounts Payable

$200,000

   Notes Payable

50,000

   Taxes Payable

10,000

   Accrued Liabilities

  30,000

Total Current Liabilities

$290,000

a.

Purchased fixed assets for cash, $20,000.

b.

Exchanged DeCort Company common stock for land. Estimated value of transaction, $80,000.

c.

Payment of $40,000 on short-term notes payable.

d.

Sold marketable securities costing $20,000 for $25,000 cash.

e.

Sold DeCort Company common stock for $70,000.

f.

Wrote off an account receivable in the amount of $20,000.

g.

Paid a cash dividend in the amount of $5,000

h.

Sold inventory costing $10,000 for $15,000 cash.

i.

Paid accounts payable in the amount of $20,000.

j.

Sold marketable securities costing $20,000 for $20,000 cash.

a.

Compute the following as of December 31, 2018:

1.

working capital

2.

current ratio

3.

acid-test ratio (conservative)

4.

cash ratio

(These ratios are to be computed using only the December 31, 2008 data.)

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.

The Effect On

Acid-

Working

Current

Test

Cash

Transaction

Capital

Ratio

Ratio

Ratio