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I wileyPLUS e Home I Chegg.com Montana c secure https://edugen.wileyplus.com/edugen/student/mainfr.uni WileyPLUS wyandt, Accounting Principles, 128 Principles of Accounting 12e (ACC 171/272) Home Read, Study & Practice Assignment Gradebook ORION Downloadable eTextbook Assignment> Open Assignment FULL SCREENPRINTER VERSION BACK Keener Incorporated had the following transactions occur involving current assets and current liabilities during February 2017 Chapter 18 Exercise i8-5 Feb. 3 Accounts receivable of $15,400 are collected 7 Equipment is purchased for s28,700 cash. L1 Paid $3,400 for a 1-year insurance policy 14 Accounts payable of $12,200 are pald. 18 Cash dividends af $4,600 are declared. Review Score Review Results Additional information: 1. 2. As of February 1, 2017, current assets were $131,800, and current liabilities were s50,000. As of February 1, 2017, current assets included $15,100 of inventory and $2,100 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 Acid-test ratio February 1 February3 February 7 February 11 February 14 February 18 Version 4.24.2.4Explanation / Answer
Answer:
Current Ratio = Current Assets / Current Liabilities
Acid Test Ratio = (Current Assets – Inventory – Prepaid Expenses) / Current Liabilities
Calculation of Current Ration Ratio and Acid Test Ration on February 1:
Current Ratio = 131,800 / 50,000
Current Ratio = 2.6:1
Acid Test Ratio = (131,800 – 15,100 – 2,100) / 50,000
Acid Test Ratio = 114,600 / 50,000
Acid Test Ratio = 2.3:1
Calculation of Current Ration Ratio and Acid Test Ration on February 3:
The Transaction will decrease Accounts Receivable by $15,400 and Increase Cash by $15,400. The Current Assets will remain same after the transaction.
Current Assets = $131,800
Current Liabilities = $50,000
Current Ratio = 131,800 / 50,000
Current Ratio = 2.6:1
Acid Test Ratio = (131,800 – 15,100 – 2,100) / 50,000
Acid Test Ratio = 114,600 / 50,000
Acid Test Ratio = 2.3:1
Calculation of Current Ration Ratio and Acid Test Ration on February 7:
The Transaction will decrease Cash by $28,700 and Increase Equipment by $28,700. The Current Assets will decrease by $28,700 after the transaction.
Current Assets = $131,800 - $28,700 = $103,100
Current Liabilities = $50,000
Current Ratio = 103,100 / 50,000
Current Ratio = 2.1:1
Acid Test Ratio = (103,100 – 15,100 – 2,100) / 50,000
Acid Test Ratio = 85,900 / 50,000
Acid Test Ratio = 1.7:1
Calculation of Current Ration Ratio and Acid Test Ration on February 11:
The Transaction will decrease Cash by $3,400 and Increase Prepaid Expense by $3,400. The Current Assets will remain same after the transaction.
Current Assets = $103,100 - $3,400 + $3,400 = $103,100
Current Liabilities = $50,000
Prepaid Expenses = $2,100 + $3,400 = $5,500
Current Ratio = 103,100 / 50,000
Current Ratio = 2.1:1
Acid Test Ratio = (103,100 – 15,100 – 5,500) / 50,000
Acid Test Ratio = 82,500 / 50,000
Acid Test Ratio = 1.7:1
Calculation of Current Ration Ratio and Acid Test Ration on February 14:
The Transaction will decrease Cash by $12,200 and decrease Accounts Payable by $12,200.
Current Assets = $103,100 - $12,200 = $90,900
Current Liabilities = $50,000 - $12,200 = $37,800
Current Ratio = 90,900 / 37,800
Current Ratio = 2.4:1
Acid Test Ratio = (90,900 – 15,100 – 5,500) / 37,800
Acid Test Ratio = 70,300 / 37,800
Acid Test Ratio = 1.9:1
Calculation of Current Ration Ratio and Acid Test Ration on February 18:
The Transaction will not effect any Current Assets but increase Current Liabilities by $4,600.
Current Assets = $90,900
Current Liabilities = $37,800 + $4,600 = $42,400
Current Ratio = 90,900 / 42,400
Current Ratio = 2.1:1
Acid Test Ratio = (90,900 – 15,100 – 5,500) / 42,400
Acid Test Ratio = 70,300 / 42,400
Acid Test Ratio = 1.7:1