Question

Current assets totaled $54,000 and the current ratio was 1.5. Assume that the following transactions were...

Current assets totaled $54,000 and the current ratio was 1.5. Assume that the following transactions were completed: (1) purchased merchandise for $7,000 on short-term credit and (2) purchased a delivery truck for $12,000, paid $3,000 cash, and signed a two-year interest-bearing note for the balance.
Required:
Compute the cumulative current ratio after each transaction. (Round your answers to 2 decimal places.)
Transaction Cumulative
Current ratio
(1)
(2)
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Homework Answers

Answer #1

Answer:

Current Ratio = Current Assets / Current Liabilities
1.5 = 54,000 / Current Liabilities
Current Liabilities = $36,000

Calculation of Cumulative Current Ratio after Transaction 1:
Purchase of Merchandise on Short Term Credit will increase Current Assets and Current Liabilities.
Current Assets = $54,000 + $7,000 = $61,000
Current Liabilities = $36,000 + $7,000 = $43,000

Cumulative Current Ratio = 61,000 / 43,000
Cumulative Current Ratio = 1.42: 1

Calculation of Cumulative Current Ratio after Transaction 2:
Purchase of Delivery Truck for $12,000 by paying Cash of $3,000 in Cash and signing 2 years notes will decrease Current Assets by $3,000 and Increase fixed Assets by $12,000 and Increase Long term Liabilities by $9,000.

Current Assets = $61,000 - $3,000 = $58,000
Current Liabilities = $43,000

Cumulative Current Ratio = 58,000 / 43,000
Cumulative Current Ratio = 1.35: 1

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