Selected amounts from Gullins Limited's balance sheet from the beginning of the year are shown below: Cash

Question:

Selected amounts from Gullins Limited's balance sheet from the beginning of the year are shown below:

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,000

Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000

Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,000

Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250,000

Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000

Plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 475,000

Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000

Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000

Notes due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000

Bonds payable in five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000

During the year, the company completed the following transactions (the first item, lettered "x," is used below as an example in the requirements):

x. Sold inventory for cash: $25,000.

a. Declared a cash dividend: $20,000.

b. Purchased inventory on account: $50,000.

c. Sold inventory on account: $40,000.

d. Purchased equipment by issuing a short-term note payable due within one year: $100,000.

e. Paid a cash dividend previously declared: $15,000.

f. Paid accounts payables totalling $30,000.

g. Purchased inventory for cash: $60,000.

h. Wrote off uncollectible accounts in the amount of $5,000, reducing the accounts receivable balance accordingly.

i. Purchased temporary investments for cash: $10,000.

j. Repurchased common shares from several shareholders for cash: $50,000.

k. Paid short-term notes due: $60,000.

Required:

1. Compute the following amounts and ratios as of the beginning of the year:

a. Working capital.

b. Current ratio.

c. Acid-test ratio.

2. Indicate the effect of each of the transactions given above on working capital, the current ratio, and the acid-test ratio. Give the effect in terms of increase, decrease, or none. Item (x) is given as an example of the format to use:

The Effect on Transaction Working Capital Current Ratio Acid-Test Ratio (x) Sold inventory for cash.... None None Increa

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