EXERCISE 7–1 Indicate whether the following independent transactions increase (), decrease (), or do not affect (NE) the current ratio, the amount of working capital, and cash from operations. Also indicate the amounts of any effects.

The company presently has a current ratio of 2 to 1 along with current liabilities of $160,000.

Working Cash from Capital Operations Current Ratio Effect Effect $ Effect $

a. Paid accrued wages of $1,000.

b. Purchased $20,000 worth of material on account.

c. Received judgment notice from the court that the company must pay $70,000 damages for patent infringement within six months.

d. Collected $8,000 of accounts receivable.

e. Purchased land for factory for $100,000 cash.

f. Repaid currently due bank note payable of $10,000.
g. Received currently due note receivable of $15,000 from customer as consideration for sale of land.
h. Received cash of $90,000 from stockholders as donated capital.
i. Purchased machine costing $50,000; $15,000 down and the balance to be paid in seven equal annual installments.
j. Retired bonds maturing five years hence at par of $50,000. Bonds have unamortized premium of $2,000.
k. Declared dividends of $10,000 payable after year-end.
l. Paid the dividends in k in cash.
m. Declared a 5% stock dividend.
n. Paid the stock dividend in m.
o. Signed a long-term purchase contract of $100,000 to commence a year from now.
p. Borrowed $40,000 cash for one year.
q. Paid accounts payable of $20,000.
r. Purchase a patent for $20,000.
s. Wrote off $15,000 of current marketable securities that became worthless.
t. $8,500 of organization expenses were written off.
u. Recorded depreciation expense of $70,000.
v. Sold $28,000 of merchandise on account.
w. Sold a building for $90,000 that had a book value of $45,000.
x. Sold a machine at cost for $5,000; received $2,500 down and the balance receivable in six months.
y. Recorded income tax expense of $80,000, half of which is deferred (long term).