62.2k views
21 votes
Gwynn Incorporated had the following transactions involving current assets and current liabilities during February 2017.

Feb. 3 Collected accounts receivable of $15,000.
7 Purchased equipment for $23,000 cash.
11 Paid $3,000 for a 1-year insurance policy.
14 Paid accounts payable of $12,000.
18 Declared cash dividends, $4,000.
Additional information: As of February 1, 2017, current assets were $120,000 and current liabilities were $40,000.
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 :
Current ratio as of February 1, 2014 :1
Feb. 3 :1
Feb. 7 :1
Feb. 11 :1
Feb. 14 :1
Feb. 18 :1

User Hakunami
by
6.8k points

1 Answer

14 votes

Answer:

Gwynn Incorporated

Current Ratio After Each Transaction:

Feb. 1, 2017: Current Ratio = 3:1

Feb. 3, 2017: Current Ratio = 3:1

Feb. 7, 2017: Current Ratio = 2.43:1

Feb. 11, 2017: Current Ratio = 2.35:1

Feb. 14, 2017: Current Ratio = 2.93:1

Feb. 18, 2017: Current Ratio = 2.56

Step-by-step explanation:

a) Data and Calculations:

February 1, 2017:

Current Assets = $120,000

Current Liabilities = $40,000

February 1, 2017: Current Ratio = $120,000/$40,000 = 3:1

Transactions:

Feb. 3 Collected accounts receivable of $15,000.

Current Assets = $120,000 (+$15,000 - $15,000)

Current Liabilities = $40,000

Current ratio = $120,000/$40,000 = 3:1

7 Purchased equipment for $23,000 cash.

Current Assets =$97,000 ($120,000 - $23,000)

Current Liabilities = $40,000

Current ratio = $97,000/$40,000 = 2.43:1

11 Paid $3,000 for a 1-year insurance policy.

Current Assets =$94,000 ($97,000 - $3,000)

Current Liabilities = $40,000

Current ratio = $94,000/$40,000 = 2.35:1

14 Paid accounts payable of $12,000.

Current Assets =$82,000 ($94,000 - $12,000)

Current Liabilities = $28,000 ($40,000 - $12,000)

Current ratio = $82,000/$28,000 = 2.93:1

18 Declared cash dividends, $4,000.

Current Assets =$82,000

Current Liabilities = $32,000 ($28,000 + $4,000)

Current ratio = $82,000/$32,000 = 2.56

b) The current ratio is one of the working capital ratios that show the relationship between current assets and current liabilities. It is computed as Current Assets divided by Current Liabilities.

User Cruizer
by
6.7k points