[noellemoon]

Current Assets:
Cash $100,000

Marketable Securities 50,000
Accounts Receivable $250,000
Less Allowance for
Doubtful Accounts (20,000) 230,000
Inventory, Lifo 300,000
Prepaid 8,000
Total Current Assets $688,000

Current Liabilities:
Accounts Payable $200,000
Notes Payable 50,000
Taxes Payable 10,000
Accrued Liabilities 30,000
Total Current Liabilities $290,000

During 2007, DeCort Company completed the following transactions:

a. Purchased fixed assets for cash, $20,000.
b. Exchanged DeCort Company common stock for land. Estimated value of transaction, $80,000.
c. Payment of $40,000 on short-term notes payable.
d. Sold marketable securities costing $20,000 for $25,000 cash.
e. Sold DeCort Company common stock for $70,000.
f. Wrote off an account receivable in the amount of $20,000.
g. Declared a cash dividend in the amount of $5,000.
h. Paid the above cash dividend.
i. Sold inventory costing $10,000 for $15,000 cash.
j. Sold inventory costing $5,000 for $8,000, on account.
k. Paid accounts payable in the amount of $20,000.
l. Sold marketable securities costing $20,000 for $20,000 cash.
m. Issued a credit memo on an account receivable, $1,000.

what's the effect on below each from a.-l.: working capital,current ratio, acid-test ratio, cash ratio?

[noellemoon]

2. Indicate the effect of each of the following transactions on the ratios listed. Use to indicate an increase, - to indicate a decrease, and 0 to indicate no effect. Assume an initial times interest earned ratio of 3 to 1, and debt ratio of .5 to 1, debt/equity ratio of 1.0 to 1, and total debt to tangible net worth ratio of 1.1 to 1. (14 points – 1/3 each block)


Times Debt Total Debt
Interest Debt Equity Tangible Net
Transaction Earned Ratio Ratio Worth Ratio
a. Collection of accounts
receivable.

b. Firm has decreasing
profits due to rising
cost of sales.

c. Firm appropriates a
substantial amount
for expansion.

d. Conversion of pre-
ferred stock to
common.

e. Repayment of a short-
term bank loan (ignore
interest).

f. Payment for a valuable
trademark.

g. The stock is split
two for one.

h. Purchase of equipment
financed by a long-
term note (consider
interest).

I. Conversion of bonds
to stock.

j. Declaration and payment
of each dividend.

k. The firm experiences a
rise in the rate charged
on its line of credit.

Thank you so much

[noellemoon]

3. Indicate the effect of the transactions listed below on each of the following: working capital, current ratio, debt ratio, net income, stockholders' equity. Use to indicate an increase, - to indicate a decrease and 0 to indicate no effect. Assume an initial current ratio of more than 1 to 1. (16 points – 1/3 each block)

Working Current Debt Net Stockholder's
Transaction Capital Ratio Ratio Income Equity
a. A cash dividend is declared and paid
b. Cash is obtained through long-term bank loans. (Do not consider interest).
c. Equipment is purchased with short-term notes. (Do not consider interest.)
d. Merchandise is purchased on credit.
e. A fixed asset is sold for more than book value.
f. A stock split takes effect.
g. Current operating expenses not pre- viously recognized are paid.
h. A firm makes a long-term cash investment in the stock of a consolidated subsidiary.
I. A firm recognizes depreciation expense.
j. A firm refinances short-term notes with long-term notes. (Ignore interest.)

[noellemoon]

To whom it may help, please see below question, thank you:
4. Indicate the effect of each of the following transactions on (a) cash and (b) working capital. Use to indicate an increase, - to indicate a decrease, and 0 for no effect. (8 Points – ½ each part)

a. Collect accounts receivable
b. Recognize depreciation expense
c. Pay taxes payable
d. Purchase fixed assets for cash
e. Sell common stock
f. Realize cash surrender value of officer's life insurance
g. Increase deferred income taxes (long-term liability)
h. Amortize of premium on bonds payable


Cash Working Capital
a.
b.
c.
d.
e.
f.
g.
h.