The Lux Company experiences the following unrelated events and transactions during Year 1. The company's existing current
Question:
The company's existing current ratio is 2:1 and its quick ratio is 1.2:1.
1. Lux wrote off $5,000 of accounts receivable as uncollectible.
2. A bank notifies Lux that a customer's check for $411 is returned marked insufficient funds. The customer is bankrupt.
3. The owners of Lux Company make an additional cash investment of $7,500.
4. Inventory costing $600 is judged obsolete when a physical inventory is taken.
5. Lux declares a $5,000 cash dividend to be paid during the first week of the next reporting period.
6. Lux purchases long-term investments for $10,000.
7. Accounts payable of $9,000 are paid.
8. Lux borrows $1,200 from a bank and gives a 90-day, 6% promissory note in exchange.
9. Lux sells a vacant lot for $20,000 that had been used in its operations.
10. A three-year insurance policy is purchased for $1,500.
Required:
Separately evaluate the immediate effect of each transaction on the company's:
a. Current ratio.
b. Quick (acid-test) ratio.
c. Working capital. Accounts Payable
Accounts payable (AP) are bills to be paid as part of the normal course of business.This is a standard accounting term, one of the most common liabilities, which normally appears in the balance sheet listing of liabilities. Businesses receive... Accounts Receivable
Accounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
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Related Book For
Financial Statement Analysis
ISBN: 978-0078110962
11th edition
Authors: K. R. Subramanyam, John Wild
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