Cummings, Inc operates an equipment rental company and sells related supplies. The companys current assets and current

Cummings, Inc operates an equipment rental company and sells related supplies. The company’s current assets and current liabilities at the beginning of the year are listed in the table below.

During the year, Cummings completed the following transactions:
1. Paid a cash dividend previously declared of $18,000.
2. Issued additional shares of common stock for cash, $150,000.
3. Sold inventory costing $80,000 for $115,000, on account
4. Declared a cash dividend of $19,000.
5. Paid accounts payable of $85,000.
6. Borrowed cash on a short-term note with the bank, $57,000.
7. Purchased inventory on account for $91,000.
8. Paid off all short-term notes due, $57,000.
9. Purchased equipment for cash, $23,000.
10. Sold marketable securities costing $29,000 for $25,000.
11. Collected cash on accounts receivable, $137,000.
12. Paid interest on a note payable, $3,500.

Required
a. Compute the following amounts and ratios at the beginning of the year:
1. Current ratio.
2. Acid-test ratio (quick ratio).
b. Indicate the effect of each transaction listed above on the current ratio and the acid-test ratio (quick ratio).Give the effect in terms of increase, decrease, or none. Part a is done as an example below to show the format used.

Effect on

Current                      Acid-Test Ratio

Ratio                           (Quick Ratio)

Increase………………. increase

Paid a cash dividend previously declared

Transcribed Image Text:

Cash Marketable securities Accounts receivable, net Inventory $145,000 85,000 268,000 137,000 Prepaid expenses Accounts payable Notes payable, current Accrued expenses $ 34,000 217,000 68,000 46,000