compute the working capital, current ratio, and quick ratio after each transaction for boole company
To compute the working capital, current ratio, and quick ratio after each transaction for Boole Company, we need the following information:
1. Initial values of current assets and current liabilities.
2. Details of each transaction (i.e., changes in current assets and current liabilities).
Let's assume the initial values of current assets and current liabilities for Boole Company are as follows:
Current assets = $50,000
Current liabilities = $30,000
Now, let's go through each transaction and calculate the working capital, current ratio, and quick ratio after each transaction.
Transaction 1: Boole Company purchases inventory worth $10,000 on credit.
- Current assets increase by $10,000 (due to the increase in inventory).
- Current liabilities remain unchanged.
- Working capital = Current assets - Current liabilities = $50,000 + $10,000 - $30,000 = $30,000
- Current ratio = Current assets / Current liabilities = ($50,000 + $10,000) / $30,000 = 2.0
- Quick ratio = (Current assets - Inventory) / Current liabilities = ($50,000 + $10,000 - $10,000) / $30,000 = 1.33
Transaction 2: Boole Company pays off $5,000 of its accounts payable.
- Current assets remain unchanged.
- Current liabilities decrease by $5,000 (due to the reduction in accounts payable).
- Working capital = Current assets - Current liabilities = $50,000 + $10,000 - $30,000 = $30,000
- Current ratio = Current assets / Current liabilities = ($50,000 + $10,000) / ($30,000 - $5,000) = 2.0
- Quick ratio = (Current assets - Inventory) / Current liabilities = ($50,000 + $10,000 - $10,000) / ($30,000 - $5,000) = 1.33
Transaction 3: Boole Company collects $8,000 of its accounts receivable.
- Current assets decrease by $8,000 (due to the decrease in accounts receivable).
- Current liabilities remain unchanged.
- Working capital = Current assets - Current liabilities = ($50,000 + $10,000 - $8,000) - $30,000 = $22,000
- Current ratio = Current assets / Current liabilities = ($50,000 + $10,000 - $8,000) / $30,000 = 1.87
- Quick ratio = (Current assets - Inventory) / Current liabilities = ($50,000 + $10,000 - $10,000 - $8,000) / $30,000 = 1.06
Continue this process for each transaction, updating the values of current assets and current liabilities accordingly. By following these steps, you can compute the working capital, current ratio, and quick ratio after each transaction for Boole Company.