Answer: Please refer to Explanation
Explanation:
The Current Ratio is calculated by dividing the Current Assets by the Current Liabilities.
The Acid-Test Ratio on the other hand is calculated by removing the Inventory from the Current Assets and then dividing that figure by the Current Liabilities.
February 1.
Current Ratio = Current Assets/Current Liabilities
= 130,200/49,300
= 2.65
Acid-Test Ratio = (Current Asset – Inventory) / Current Liability
= (130,200-15,900) / 49,300
= 2.32
February 3
Accounts Receivables collected is Cash moving from The Receivables to the Cash account. Both of them are Current Assets so no change.
Current Ratio = 2.65
Acid -Test Ratio = 2.65
February 7
Cash reduces by $27,800
Current Ratio = (130,200-27,800) / 49,300
= 2.08
Acid-Test Ratio = (130,200-27,800 - 15,900) / 49,300
= 1.75
February 11
Paying for the Insurance in advance is considered a Prepayment. Prepayments are Current Assets so cash simply moved from cash account to Prepayment so no change in Current Assets so both ratios remain the same.
Current Ratio = 2.08
Acid-test Ratio = 1.75
February 14.
Accounts Payable being paid reduces the Current Liabilities. It also reduces the cash account so both Current Liabilities and Current Assets will be reduced.
Current Ratio = (130,200-27,800-12,500) / (49,300-12,500)
= 89,900 / 36,800
= 2.44
Acid-Test Ratio = (130,200 - 27,800 - 15,900 - 12,500) / (49,300-12,500)
= 74,000/36,800
= 2.01
February 18
When Dividends are declared but not paid, there is no effect on the cash account. However, because they have been declared, they become a liability. This therefore increases the current Liability account.
Current Ratio = 89,900 / (36,800 + 5,700)
= 2.12
Acid Test Ratio = 74,000 / (36,800 + 5,700)
= 1.74
