Exercise 14-6 Keener Incorporated had the following transactions occur involving
ID: 2498821 • Letter: E
Question
Exercise 14-6
Keener Incorporated had the following transactions occur involving current assets and current liabilities during February 2017.
Feb. 3 Accounts receivable of $15,200 are collected.
Feb. 7 Equipment is purchased for $28,400 cash.
Feb. 11 Paid $2,000 for a 3-year insurance policy.
Feb. 14 Accounts payable of $12,500 are paid.
Feb. 18 Cash dividends of $4,000 are declared.
Additional information:
1. As of February 1, 2017, current assets were $135,000, and current liabilities were $50,300.
2. As of February 1, 2017, current assets included $14,800 of inventory and $1,800 of prepaid expenses.
(a) Compute the current ratio as of the beginning of the month and after each transaction.
(b) Compute the acid-test ratio as of the beginning of the month and after each transaction.
(Round answers to 1 decimal place, e.g. 1.6.)
Current ratio
February 1 ? :1
February 3 ? :1
February 7 ? :1
February 11 ? :1
February 14 ? :1
February 18 ? :1
Acid-test ratio
February 1 ? :1
February 3 ? :1
February 7 ? :1
February 11 ? :1
February 14 ? :1
February 18 ? :1
Explanation / Answer
Note; Current ratio = Current assets / Current liabilities
Acid test ratio = Current assets- inventory - prepaid expenses / Current liabilities
Date Transaction Current ratio Acid test ratio Feb 1 2017 - 2.68 2.35 Feb 3 Accounts receivable collected 2.68 2.35 Feb 7 Equipment purchased for cash 2.12 1.79 Feb 11 Paid for an insurance policy 2.08 1.75 Feb 14 Accounts payable paid 2.44 1.99 Feb 18 Cash dividends declared 2.44 1.99