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Effect of transactions on current position analysis

A company's ability to pay its current liabilities.

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Instructions

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Starting Questions

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Final Questions

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Instructions

Data pertaining to the current position of Forte Company are as follows:

Cash	$440,000
Marketable securities	175,000
Accounts and notes receivable (net)	335,000
Inventories	700,000
Prepaid expenses	44,000
Accounts payable	180,000
Notes payable (short-term)	230,000
Accrued expenses	290,000

Required:

1.

Compute (A) the working capital

The excess of the current assets of a business over its current liabilities.

, (B) the current ratio

A financial ratio that is computed by dividing current assets by current liabilities.

, and (C) the quick ratio

A financial ratio that measures the ability to pay current liabilities with quick assets (cash, marketable securities, accounts receivable).

. Round ratios to one decimal place.

2.

Compute the working capital, the current ratio, and the quick ratio after each of the following transactions, and record the results in the appropriate columns of the table provided. Consider each transaction separately and assume that only that transaction affects the data given. Round to one decimal place.

A.	Sold marketable securities at no gain or loss, 80,000.
B.	Paid accounts payable, 120,000.
C.	Purchased goods on account, 130,000.
D.	Paid notes payable, 105,000.
E.	Declared a cash dividend, 140,000.
F.	Declared a common stock dividend on common stock, 50,000.
G.	Borrowed cash from bank on a long-term note, 200,000.
H.	Received cash on account, 140,000.
I.	Issued additional shares of stock for cash, 595,000.
J.	Paid cash for prepaid expenses, 12,000.

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Starting Questions

1.

Compute the following. Round ratios to one decimal place

A.	Working capital:
B.	Current ratio:
C.	Quick ratio:

Points:

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Explanation

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Final Questions

2. Compute the working capital, the current ratio, and the quick ratio after each of the following transactions, and record the results in the appropriate columns of the table provided. Consider each transaction separately and assume that only that transaction affects the data given. Round to one decimal place.

	Working	Current	Quick
Transaction	Capital	Ratio	Ratio
A.
B.
C.
D.
E.
F.
G.
H.
I.
J.

Points:

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Explanation

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