Question

Selected amounts from Reingold Company’s balance sheet from the beginning of the year follow:

Cash	$	79,000
Marketable Securities	$	16,500
Accounts receivable, net	$	371,600
Inventory	$	483,400
Prepaid expenses	$	14,300
Plant and equipment, net	$	1,040,000
Accounts payable	$	216,200
Accrued liabilities	$	68,100
Notes due within one year	$	118,000
Bonds payable in five years	$	149,000

During the year, the company completed the following transactions:

x.	Purchased inventory on account, $56,750.
a.	Declared a cash dividend, $39,000.
b.	Paid accounts payable, $114,400.
c.	Collected cash on accounts receivable, $89,900.
d.	Purchased equipment for cash, $82,200.
e.	Paid a cash dividend previously declared, $39,000.
f.	Borrowed cash on a short-term note with the bank, $73,500.
g.	Sold inventory costing $77,200 for $109,000, on account.
h.	Wrote off uncollectible accounts in the amount of $13,600 reducing the accounts receivable balance accordingly.
i.	Sold marketable securities costing $16,500 for cash, $12,600.
j.	Issued additional shares of common stock for cash, $218,000.
k.	Paid off all short-term notes due, $191,500.

Required:

1.	Compute the following amounts and ratios as of the beginning of the year:

a.	Working capital.

          

b.	Current ratio. (Round your answer to 2 decimal places.)

          

c.	Acid-test ratio. (Round your answer to 2 decimal places.)

         

Answer 1

(a)Working Capital= Current assets- Current Liabilities

Current Asset In $

Marketable securities Nil

Account receivables 268100

inventory 462950

Prepaid Expenses 14300

Total Current Assets 745350

Current Liabilities

Account payable 101800

Accrued liabilities 68100

Notes due Nil   

Total current liabilities $ 169900

Working Capital = Current asset- Current Liabilities

=$745350-$169900= $575450

(B)Current ratio= Current asset/Current Liabilties

= $745350/$169900=$4.386 times

(C) Acid test ratio=Current assets- Stock-prepaid expenses/ Current liabilities

Quick assets$745350-$462950-$14300=$268100

Quick ratio=$268100/$169900=$1.57 times