Question

# Effect of Transactions on Current Position Analysis Data pertaining to the current position of Lucroy Industries...

Effect of Transactions on Current Position Analysis

Data pertaining to the current position of Lucroy Industries Inc. are as follows:

 Cash \$425,000 Marketable securities 182,500 Accounts and notes receivable (net) 345,000 Inventories 750,000 Prepaid expenses 48,000 Accounts payable 220,000 Notes payable (short-term) 230,000 Accrued expenses 300,000

Required:

1. Compute (a) the working capital, (b) the current ratio, and (c) the quick ratio. Round ratios to one decimal place.

 a. Working capital \$ b. Current ratio c. Quick ratio

2. Compute the working capital, the current ratio, and the quick ratio after each of the following transactions, and record the results in the appropriate columns. Consider each transaction separately and assume that only that transaction affects the data given. Round ratios to one decimal place.

 Transaction Working Capital Current Ratio Quick Ratio a. Sold marketable securities at no gain or loss, \$70,000. \$ b. Paid accounts payable, \$140,000. c. Purchased goods on account, \$100,000. d. Paid notes payable, \$115,000. e. Declared a cash dividend, \$130,000. f. Declared a common stock dividend on common stock, \$45,000. g. Borrowed cash from bank on a long-term note, \$205,000. h. Received cash on account, \$105,000. i. Issued additional shares of stock for cash, \$550,000. j. Paid cash for prepaid expenses, \$9,000.

Current Assets = 425000 + 182500 + 345000 + 750000 + 48000 = 1750500.

Current liabilities = 220000 + 230000 + 300000 = 750000.

Quick assets = Current assets - Stock - Prepaid expenses.

Quick assets = 1750500 - 750000 - 48000 = 952500.

Working capital = Current assets - Current liabilities = 1750500 - 750000 = 1000500.

Current Ratio = Current assets / Current liabilities = 1750500 / 750000 = 2.334.

Quick Ratio = Quick asset / Current liabilities = 952500 / 750000 = 1.27.