Financial Accounting: An Integrated Statements Approach, 2nd Edition

Data pertaining to the current position of Around Town Clothing Co. are as follows:

Cash $120,000

Marketable securities 56,000

Accounts and notes receivable (net) 185,000

Inventories 224,000

Prepaid expenses 9,000

Accounts payable 188,000

Notes payable (short-term) 55,000

Accrued expenses 26,000

Instructions

1. Compute (a) the working capital, (b) the current ratio, and (c) the quick ratio. Round to two
   decimal places.


2. List the following captions on a sheet of paper:

Transaction Working Capital Current Ratio Quick Ratio

Compute the working capital, the current ratio, and the quick ratio after each of the fol-

lowing transactions, and record the results in the appropriate columns. Consider each trans-

action separately and assume that only that transaction affects the data given above. Round

to two decimal places.

a. Sold marketable securities at no gain or loss, $34,000.

b. Paid accounts payable, $60,000.

c. Purchased goods on account, $40,000.

d. Paid notes payable, $20,000.

e. Declared a cash dividend, $25,000.

f. Declared a common stock dividend, $16,500.

g. Borrowed cash from bank on a long-term note, $120,000.

h. Received cash on account, $86,000.

i. Issued additional shares of stock for cash, $100,000.

j. Paid cash for prepaid expenses, $9,000.

The comparative financial statements of Quest Polymers, Inc., are as follows. The market price

of Quest Polymers, Inc., common stock was $64 on December 31, 2007.

676 Chapter 14 Financial Statement Analysis

Alternate Problem

14-4B

Profitability, asset efficiency,

leverage, and stockholder

ratios

Goals2, 3, 4, 5

9. Ratio of liabilities to
   stockholders’ equity, 0.6

Alternate Problem

14-3B

Effect of transactions on cur-

rent position analysis

Goal 4

1. Quick ratio, 1.34

Quest Polymers, Inc.

Comparative Retained Earnings Statement

For the Years Ended December 31, 2007 and 2006

2007 2006

Retained earnings, January 1 $ 645,000 $512,000

Add net income for year 361,000 221,000

Total $1,006,000 $733,000

Deduct dividends:

On preferred stock $ 32,000 $ 24,000

On common stock 64,000 64,000

Total $ 96,000 $ 88,000

Retained earnings, December 31 $ 910,000 $645,000