[dolfinsrforu]

Not sure if these are right but I must show the effect on working capital and current ratio

Issued 10 year bonds for 100,000 cash (Working capital Na and current ratio NA)
Paid Cash to settle an account payable (Working capital N/A and current ratio NA
Sold merchandise for more than cost ( Working capital + and current ratio +)
Recognized depreciation on plant equipment (Working capital NA and current ratio NA)
Purchased a machine by using long-term note payable (working capital NA and current ratio NA)
Purchased merchandise on account (working capital NA current ratio -)
Received customer payment on account receivable (working capital NA current ratio NA)
Paid cash for federal income tax expense (working capital - current ratio-)
Declared cash dividend payable in one month (working capital NA current ratio NA
Received cash for interest on a long term note receivable (working capital NA current ratio NA)
Received cash from issuing a short term note payable (working capital NA current ratio NA)
Traded a truck for a sedan (working capital NA Current ratio NA)

[morgaine300]

You have posted this now three times, twice here 3 minutes apart, and also over under the Accounting forum. That just confuses the people trying to look at this.

[dolfinsrforu]

Sorry it is my first time here and for some reason I couldn't see the posting after it was typed.

[morgaine300]

Let's start with Cash. You have a lot of cash entries here, but you also marked most of them as no change to current ratio or working capital either one. But Cash is a current asset, and both of these equations involve current assets. How can Cash not change these ratios? In fact, cash is really your most important current asset from the standpoint of these ratios. Any change in the current assets or liabilities is going to change these. (The one exception is if current assets & current liabilities change the same direction by the same amount, it won't affect working capital since that's a subtraction. And of course, trading an asset for an asset, isn't a "change" so that doesn't do anything.)

So the first thing you need to do is go back to every one involving cash and take that into consideration. As a general rule, when they give you these types of problems, the vast majority of them are going to have some type of change.

Recognized depreciation on plant equipment (Working capital NA and current ratio NA)
purchased a machine by using long-term note payable (working capital NA and current ratio NA)
Purchased merchandise on account (working capital NA current ratio -)
Received customer payment on account receivable (working capital NA current ratio NA)
Paid cash for federal income tax expense (working capital - current ratio-)
traded a truck for a sedan (working capital NA Current ratio NA)

These are all correct. (You even have an example where CA & CL both go up by same amount and it doesn't affect working capital. And an example where you exchange asset for asset, which doesn't do anything.)

Declared cash dividend payable in one month (working capital NA current ratio NA

Dividend payable is a current liability.

The rest involve cash and need re-done.

[jhunger11]

Can you explain the question, "Purchased a machine by using long-term note payable," and how that does not effect either?

[pready]

A machine is equipment, not a current asset.

A long-term note payable is not a current liability.


since neither account affects a current asset or a current liability, then there will be no affect on the current ratio or working capital.
Current Ratio = Current Assets / Current Liabilities
Working Capital = Current Assets - Current Liabilities