Answer each of the questions in the following unrelated situations. (a) The curr
ID: 2589046 • Letter: A
Question
Answer each of the questions in the following unrelated situations. (a) The current ratio of a company is 5:1 and its acid-test ratio is 1:1. If the inventories and prepaid items amount to $481,400, what is the amount of current liabilities? Current Liabilities 48140 (b) A company had an average inventory last year of $126,000 and its inventory turnover was 5. If sales volume and unit cost remain the same this year as last and inventory turnover is 8 this year, what will average inventory have to be during the current year? (Round answer to 0 decimal places, e.g. 125.) Average Inventory (c) A company has current assets of $89,610 (of which $38,180 is inventory and prepaid items) and current liabilities of $38,180. What is the current ratio? What is the acid-test ratio? If the company borrows $12,870 cash from a bank on a 120-day loan, what will its current ratio be? What will the acid-test ratio be? (Round answers to 2 decimal places e.g. 2.50.) Current Ratio Acid Test Ratio New Current Ratio New Acid Test Ratio 1 1 (d) A company has current assets of $581,300 and current liabilities of $204,000. The board of directors declares a cash dividend of $164,100. What is the current ratio after the declaration but before payment? What is the current ratio after the payment of the dividend? (Round answers to 2 decimal places, e.g. 2.50.) Current ratio after the declaration but before payment Current ratio after the payment of the dividendExplanation / Answer
a.
Current ratio = 5
Current assets / Current liabilities = 5
Current assets = 5 * Current liabilities
Acid test ratio = 1
(Current assets - Inventories and prepaid items) / Current liabilities = 1
Current assets - Inventories and prepaid items = Current liabilities
(5 * Current liabilities) - 481,400 = Current liabilities
4 * Current liabilities = 481,400
Current liabilities = 120,350
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b.
Inventory turnover = 5
Cost of goods sold / Avergae inventory = 5
Cost of goods sold / 126,000 = 5
Cost of goods sols = 630,000
Inventory turnover this year = 8
630,000 / Average inventory = 8
Avergae inventory = 78,750
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c.
Current ratio = Current assets / Current liabilities
= 89,610 / 38,180
= 2.35
Acid test ratio = (Current assets - Inventory and prepaid items) / Current liabilities
= (89,610 - 38,180) / 38,180
= 1.35
Cash = Current asset
120 day loan = Current liability
New current assets = 89,610 + 12,870 = 102,480
New current liabilities = 38,180 + 12,870 = 51,050
New current ratio = New current assets / New current liabilities
= 102,480 / 51,050
= 2.01
New acid test ratio = (New current assets - inventory and prepaid items) / New current liabilities
= (102,480 - 38,180) / 51,050
= 1.26
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d.
Journal entry for decleartion of dividends
Current assets = 581,300
Current liabilities = 204,000 + 164,100 = 368,100
Current ratio after the decleration but before payment = Current assets / Current liabilities
= 581,300 / 368,100
= 1.58
Journal entry for payment of dividend
Current assets = 581,300 - 164,100 = 417,200
Current liabilities = 204,000
Current ratio after the payment of the dividend = Current assets / Current liabilties
= 417,200 / 204,000
= 2.05
Dividends 164,100 Dividends payable 164,100