Plum Corporation began the month of May with $1,200,000 of current assets, a cur
ID: 2439483 • Letter: P
Question
Plum Corporation began the month of May with $1,200,000 of current assets, a current ratio of 2.20:1, and an acid-test ratio of 1.20:1. During the month, it completed the following transactions (the company uses a perpetual inventory system). May 2 Purchased $75,000 of merchandise inventory on credit. 8 Sold merchandise inventory that cost $60,000 for $140,000 cash. 10 Collected $31,000 cash on an account receivable. 15 Paid $28,000 cash to settle an account payable. 17 Wrote off a $5,000 bad debt against the Allowance for Doubtful Accounts account. 22 Declared a $1 per share cash dividend on its 59,000 shares of outstanding common stock. 26 Paid the dividend declared on May 22. 27 Borrowed $100,000 cash by giving the bank a 30-day, 10% note. 28 Borrowed $125,000 cash by signing a long-term secured note. 29 Used the $225,000 cash proceeds from the notes to buy new machinery. Required: Complete the table below showing Plum's (1) current ratio, (2) acid-test ratio, and (3) working capital after each transaction. (Do not round intermediate calculations. Round your ratios to 2 decimal places and the working capitals to nearest dollar amount. Subtracted amount should be indicated with a minus sign.)
Explanation / Answer
Answers
Current Assets
$ 1,200,000
Current Ratio
2.20:1
Current Liabilities
[1200000 x 1/2.20] = $545,455
Acid Test Ratio
1.20:1
Quick Asset
[$ 545,455 x 1.20/1] = $654,546
Current Assets
Quick Assets
Current Liabilities
Current Ratio
Acid Test Ratio
Working Capital
[A]
[B = A – Inventory – Prepaid Assets]
[C]
[D = A/C]
[E = B/C]
[F = A – C]
Beginning
$ 1,200,000.00
$ 654,546.00
$ 545,455.00
2.20
1.2
$ 654,545.00
May-02
$ 75,000.00
$ 75,000.00
Balance
$ 1,275,000.00
$ 654,546.00
$ 620,455.00
2.05
1.05
$ 654,545.00
May-08
$ 80,000.00
$ 140,000.00
Balance
$ 1,355,000.00
$ 794,546.00
$ 620,455.00
2.18
1.28
$ 734,545.00
May-10
$ -
$ -
Balance
$ 1,355,000.00
$ 794,546.00
$ 620,455.00
2.18
1.28
$ 734,545.00
May-15
$ (28,000.00)
$ (28,000.00)
$ (28,000.00)
Balance
$ 1,327,000.00
$ 766,546.00
$ 592,455.00
2.24
1.29
$ 734,545.00
May-17
$ -
$ -
Balance
$ 1,327,000.00
$ 766,546.00
$ 592,455.00
2.24
1.29
$ 734,545.00
May-22
$ 59,000.00
Balance
$ 1,327,000.00
$ 766,546.00
$ 651,455.00
2.04
1.18
$ 675,545.00
May-26
$ (59,000.00)
$ (59,000.00)
$ (59,000.00)
Balance
$ 1,268,000.00
$ 707,546.00
$ 592,455.00
2.14
1.19
$ 675,545.00
May-27
$ 100,000.00
$ 100,000.00
$ 100,000.00
Balance
$ 1,368,000.00
$ 807,546.00
$ 692,455.00
1.98
1.17
$ 675,545.00
May-28
$ 125,000.00
$ 125,000.00
$ -
Balance
$ 1,493,000.00
$ 932,546.00
$ 692,455.00
2.16
1.35
$ 800,545.00
May-29
$ (225,000.00)
$ (225,000.00)
Balance
$ 1,268,000.00
$ 707,546.00
$ 692,455.00
1.83
1.02
$ 575,545.00
Current Assets
$ 1,200,000
Current Ratio
2.20:1
Current Liabilities
[1200000 x 1/2.20] = $545,455
Acid Test Ratio
1.20:1
Quick Asset
[$ 545,455 x 1.20/1] = $654,546