(Note: Consider completing this problem after Problem 13-1 to ensure that you obtain a clear understanding of the effect of various transactions on these measures of liquidity.)
The following account balances are taken from the records of Veriform Inc.:
Cash ................ $ 70,000
Short-term investments ........ 60,000
Accounts receivable .......... 80,000
Inventory ............... 100,000
Prepaid insurance ............ 10,000
Accounts payable ............ 75,000
Taxes payable ............ 25,000
Salaries and wages payable ........ 40,000
Short-term loans payable ......... 210,000
Required
1. Use the information provided to compute the amount of working capital and Veriform€™s current and quick ratios (round to three decimal points).
2. Determine the effect that each of the following transactions will have on Veriform€™s working capital, current ratio, and quick ratio by recalculating each and then indicating whether the measure is increased, decreased, or not affected by the transaction. (For the ratios, round to three decimal points.) Consider each transaction independently; that is, assume that it is the only transaction that takesplace.

Transcribed Image Text:

Effect of Transaction on Working Curment Capital Transaction Ratio a. Purchased inventory on account, $20,000 b. Purchased inventory for cash, $15,000 c. Paid suppliers on account, $30,000 d. Received cash on account, $40,000 e. Paid insurance for next year, $20,000 f. Made sales on account, $60,000 g. Repaid short-term loans at bank, $25,000 h. Borrowed $40,000 at bank for 90 days i. Declared and paid $45,000 cash dividend i. Purchased $20,000 of short-term investments k. Paid $30,000 in salaries l. Accrued additional $15,000 in taxes