Question

Problem 17-3A Transactions, working capital, and liquidity ratios LO P3

Plum Corporation began the month of May with $900,000 of current assets, a current ratio of 2.40:1, and an acid-test ratio of 1.40:1. During the month, it completed the following transactions (the company uses a perpetual inventory system).

May		2		Purchased $70,000 of merchandise inventory on credit.
		8		Sold merchandise inventory that cost $55,000 for $130,000 cash.
		10		Collected $28,000 cash on an account receivable.
		15		Paid $24,500 cash to settle an account payable.
		17		Wrote off a $5,000 bad debt against the Allowance for Doubtful Accounts account.
		22		Declared a $1 per share cash dividend on its 69,000 shares of outstanding common stock.
		26		Paid the dividend declared on May 22.
		27		Borrowed $105,000 cash by giving the bank a 30-day, 10% note.
		28		Borrowed $135,000 cash by signing a long-term secured note.
		29		Used the $240,000 cash proceeds from the notes to buy new machinery.

Required:
Complete the table below showing Plum's (1) current ratio, (2) acid-test ratio, and (3) working capital after each transaction. (Do not round intermediate calculations. Round your ratios to 2 decimal places and the working capitals to nearest dollar amount. Subtracted amount should be indicated with a minus sign.)

Transaction	Current Assets	Quick Assets	Current Liabilities	Current Ratio	Acid-Test Ratio	Working Capital
Beginning	$900,000	$525,000	$375,000	2.40	1.40	$525,000
May 2
Balance	900,000		375,000
May 8
Balance
May 10
Balance
May 15
Balance
May 17
Balance
May 22
Balance
May 26
Balance
May 27
Balance
May 28
Balance
May 29
Balance

Answer 1