P17-3A
Transactions, working capital, and liquidity ratios
P17-3A
Park Corporation began the month of May with $650,000 of
current assets, a current ratio of 2.50:1, and an acid-test ratio of 1.10:1.
During the month, it completed the following transactions (the company uses a
perpetual inventory system).
May 2
Purchased $75,000 of merchandise inventory on credit.
8
Sold merchandise inventory that cost $58,000 for $103,000 cash.
10
Collected $19,000 cash on an account receivable.
15
Paid $21,000 cash to settle an account payable.
17
Wrote off a $3,000 bad debt against the Allowance for Doubtful Accounts
account.
22
Declared a $1 per share cash dividend on its 40,000 shares of outstanding
common stock.
26
Paid the dividend declared on May 22.
27
Borrowed $75,000 cash by giving the bank a 30-day, 10% note.
28
Borrowed $90,000 cash by signing a long-term secured note.
29
Used the $165,000 cash proceeds from the notes to buy new machinery.
Required
Prepare a table showing Park’s (1)
current ratio, (2) acid-test ratio, and (3) working capital, after each
transaction. Round ratios to two
decimals.
Check
May 22: Current ratio, 2.12; Acid-test ratio, 1.04
May
29: Current ratio, 1.82; Working capital, $320,000
SOLUTION
PREVIEW
PARK CORPORATION
Ratios and Working Capital
|
Transaction
|
Current
assets
|
Quick
Assets
|
Current
Liabilities
|
Current
ratio
|
Acid
test Ratio
|
Working
capital
|
|
Beginning
|
$ 650,000
|
$
286,000
|
$
260,000
|
2.50
|
1.10
|
390,000
|
|
May 2
|
75,000
|
|
75,000
|
Correct!
|
Correct!
|
Correct!
|
|
Balances
|
725,000
|
286,000
|
335,000
|
2.16
|
0.85
|
390,000
|
File name: P17-3A-Park-Corporation.xls File type: XLS Price: $8
