Solutions Chapter 14 – Set B Exercises – Libby 7e
E14–1B.
Current Assets
(1)
Current Liabilities
(2)
Current
Ratio
(1 ÷ 2)
Start
$64,000
($64,000 ÷ 1.6)
$40,000
1.60
E14–2B.
Effect on Current Ratio
1.
Will decrease
2.
Will increase
3.
Increase, assuming that cash was collected from sale
4.
Will decrease
E14–3B.
Turnover:
21.7
67.6
Transaction (1)
Inventory
Accts. Pay.
Subtotal
72,000
48,000
1.50
Transaction (2)*
Cash
$66,000
$48,000
E14–4B.
Rate of return on equity $6,341 ÷ ($15,930 – $4,570)
=
55.8
%
E14–5B.
Current Assets
(1)
Current Liabilities
(2)
Current
Ratio
(1 ÷ 2)
Start
$120,000
($120,000 ÷ 1.5)
$80,000
1.50
Transaction (1)
Cash
–16,000
Accts. pay.
–16,000
Subtotal
1.63
Transaction (2)
Cash
–12,000
92,000
1.44
impact
92,000
1.44
Transaction (4)
Cash
–20,000
Dividends pay.
–20,000
E14–6B.
Turnover:
Accounts receivable $400,000* ÷ [($55,000 + $73,000) ÷ 2]
=
6.3
Inventory ($800,000 x .5) ÷ [($81,000 + $35,000) ÷ 2]
=
6.9
*$800,000 x 50% = $400,000
Accounts receivable (365 days ÷ 6.3)
=
57.9
Inventory (365 days ÷ 6.9)
=
52.9
Rate of return on assets
Financial leverage percentage (positive)
=
14.9
%
E14–7B.
Current Assets
(1)
Current Liabilities
(2)
Current
Ratio
(1 ÷ 2)
Start
$480,000
($480,000 ÷ 2)
$240,000
2.00
Transaction (1)
A/R*
+10,000
-12,000
A/R
460,000
240,000
1.92
Transaction (6)
ST Lia.
+40,000
460,000
280,000
1.64
E14–8B.
Current Ratio
$1,041,805
$435,038
=
2.39
Inventory Turnover
$1,715,815
=
5.45
[($331,741 + $298,000) ÷ 2]
=
5.48
[($508,870 + $489,905) ÷ 2]
Subtotal
490,000
240,000
2.04
Transaction (2)
Dividends pay.
+30,000
490,000
270,000
1.81
Prepaid
+15,000
490,000
270,000
1.81
Transaction (4)
Cash
Dividends pay.
460,000
240,000
1.92
Transaction (5)
Cash
E14–9B.
Turnover:
Accounts receivable $720,000* ÷ [($40,000 + $60,000) ÷ 2]
=
14.4
Inventory ($1,200,000 x .50) ÷ [($65,000 + $20,000) ÷ 2]
=
14.1
*$1,200,000 x 60% = $720,000
E14–10B.
Current Assets
(1)
Current Liabilities
(2)
Current
Ratio
(1 ÷ 2)
Start
$68,000
($68,000 ÷ 1.6)
$42,500
1.60
Transaction (1)
Inventory
Accts. Pay.
Subtotal
76,000
50,500
1.50
Transaction (2)*
Cash
$70,000
$50,500
1.39
Accounts receivable (365 days ÷ 14.4)
=
25.3
Inventory (365 days ÷ 14.1)
=
25.9