Question

Kingbird, Inc. had the following transactions involving current assets and current liabilities during February 2017. Feb. 3 Collected accounts receivable of $15,800. 7 Purchased equipment for $43,200 cash. 11 Paid $5,400 for a 1-year insurance policy. 14 Paid accounts payable of $12,200. 18 Declared cash dividends, $5,800. Additional information: As of February 1, 2017, current assets were $138,300 and current liabilities were $35,800. Compute the current ratio as of the beginning of the month and after each transaction. (Round all answers to 2 decimal places, e.g. 1.83 : 1.) Current ratio as of February 1, 2014 :1 Feb. 3 :1 Feb. 7 :1 Feb. 11 :1 Feb. 14 :1 Feb. 18 :1

Answer 1

Answer:

Beginning of the month = 3.86 : 1

Feb 3 = 3.86 : 1

Feb 7 = 2.66 : 1

Feb 11= 2.66 : 1

Feb 14 = 3.51 : 1

Feb 18 = 2.82 : 1

Ending of the Month = 2.82 : 1

Explanation:

Effect on current assets and current liabilities for each transaction:

current assets                                         138,300

collected AR   no effect

we are chaging one asset (AR) for another (cash)

purchase of long-term asset on cash (43,200)

prepaid insuance for 1 year no effect

we change one asset (cash) for another(prepaid insurance)

paid account payable                          (12,200)

Ending Current assets                          82,900

current liabilities                35,800

paid account payable       (12,200)

dividend payable                5,800

Ending current liabilities    29,400

Current ratio:

$\frac{current \: assets}{current \: liabilites }$

beginning of the month

138,300 / 35,800 = 3,86

Feb 3 after Ar collected, the ratio is the same as no-change occur

Feb 7 current asset decreased by 43,200

95,100 / 35,800 = 2,66

Feb 11 after the insurance purchase, the ratio is the same as no-change occur

Feb 14 both decrease by 12,200

82,900/23,600 = 3,5127 = 3.51

Feb 18 current liabilities increase by 4,800

82,900 / 29,400 = 2.82