Total Current assets Total Current Liabilities Net Working Capital Current Ratio
a. Cash is acquired through issuance of additional common stock. _________ _________ _________ _________
b. Merchandise is sold for cash. (Assume a profit.) ___+______ _________ ____+_____ ___+______
c. A fixed asset is sold for more than book value. ______+___ _________ _____+____ _____+____
d. Payment is made to trade creditors for previous purchases. ___-______ _________ ___0______ ______+___
e. A cash dividend is declared and paid. ______-___ _________ _____0____ ___-______
f. A stock dividend is declared and paid. _________ _________ _________ _________
g. Cash is obtained through long-term bank loans. ______+___ _________ _____0____ _____-____
h. A profitable firm increases its fixed assets depreciation allowance account. _________ _________ _________ _________
i. Current operating expenses are paid. ______-___ _________ ______-___ ____-_____
j. Ten-year notes are issued to pay off accounts payable. _____0____ _________ ____0_____ ______+___
k. Accounts receivable are collected. _______0__ _________ ____0_____ ______0___
l. Equipment is purchased with short-term notes.
______0___ _________ ___0______ _____-__
m. Merchandise is purchased on credit. _______+___ _________ _____0____ ____-_____
n. The estimated taxes payable are increased. ______0___ _________ ____-_____ ______-___
o. Marketable securities are sold below cost. _______-__ _________ _____-____ ______-___
Indicate the effects of the previous transactions on each of the following: total cur-
rent assets, total current liabilities, net working capital, and current ratio. Use + to indicate
an increase, − to indicate a decrease, and 0 to indicate no effect. Assume an initial current
ratio of more than 1 to 1.
a. Cash is acquired through issuance of additional common stock. +_______ _________ _________ _________
b. Merchandise is sold for cash. (Assume a profit.) +_______ _________ +_______ +_______
c. A fixed asset is sold for more than book value. +_______ _________ +_______ +_______
d. Payment is made to trade creditors for previous purchases. -_______ -_______ 0_______ +_______
e. A cash dividend is declared and paid. -_______ _________ 0_______ -_______
f. A stock dividend is declared and paid. _________ _________ _________ _________
g. Cash is obtained through long-term bank loans. +_______ _________ 0_______ -_______
h. A profitable firm increases its fixed assets depreciation allowance account. _________ _________ _________ _________
i. Current operating expenses are paid. -_______ _________ -_______ -_______
j. Ten-year notes are issued to pay off accounts payable. 0_______ -_______ 0_______ +_______
k. Accounts receivable are collected. 0_______ _________ 0_______ 0_______
l. Equipment is purchased with short-term notes.
0_______ +_______ 0_______ -_______
m. Merchandise is purchased on credit. +_______ +_______ 0_______ -_______
n. The estimated taxes payable are increased. 0_______ +_______ -_______ -_______
o. Marketable securities are sold below cost. -_______ _________ -_______ -_______
Total Current assets Total Current Liabilities Net Working Capital Current Ratio
a. Cash is acquired through issuance of additional common stock. +Cash 0 +Cash 0
b. Merchandise is sold for cash. (Assume a profit.) +Cash 0 +Cash plus Profit +Cash plus Profit
c. A fixed asset is sold for more than book value. +Cash plus Profit 0 +Cash plus Profit +Cash plus Profit
d. Payment is made to trade creditors for previous purchases. -Cash 0 -Cash -Cash
e. A cash dividend is declared and paid. -Cash 0 -Cash -Cash
f. A stock dividend is declared and paid. 0 0 0 0
g. Cash is obtained through long-term bank loans. +Cash plus Loan 0 +Cash plus Loan -Loan
h. A profitable firm increases its fixed assets depreciation allowance account. 0 0 0 0
i. Current operating expenses are paid. -Cash 0 -Cash -Cash
j. Ten-year notes are issued to pay off accounts payable. 0 0 0 +Notes Payable
k. Accounts receivable are collected. +Cash 0 +Cash +Cash
l. Equipment is purchased with short-term notes. +Equipment +Short-term Notes +Equipment +Equipment
m. Merchandise is purchased on credit. +Merchandise +Accounts Payable +Merchandise -Accounts Payable
n. The estimated taxes payable are increased. 0 +Taxes Payable -Taxes Payable -Taxes Payable
o. Marketable securities are sold below cost. -Marketable Securities 0 -Marketable Securities -Marketable Securities
a. Cash is acquired through issuance of additional common stock.
- Total Current Assets: + (increases)
- Total Current Liabilities: 0 (no effect)
- Net Working Capital: + (increases)
- Current Ratio: + (increases)
b. Merchandise is sold for cash. (Assume a profit.)
- Total Current Assets: + (increases)
- Total Current Liabilities: 0 (no effect)
- Net Working Capital: + (increases)
- Current Ratio: + (increases)
c. A fixed asset is sold for more than book value.
- Total Current Assets: + (increases)
- Total Current Liabilities: 0 (no effect)
- Net Working Capital: + (increases)
- Current Ratio: + (increases)
d. Payment is made to trade creditors for previous purchases.
- Total Current Assets: - (decreases)
- Total Current Liabilities: - (decreases)
- Net Working Capital: 0 (no effect)
- Current Ratio: 0 (no effect)
e. A cash dividend is declared and paid.
- Total Current Assets: - (decreases)
- Total Current Liabilities: 0 (no effect)
- Net Working Capital: - (decreases)
- Current Ratio: - (decreases)
f. A stock dividend is declared and paid.
- Total Current Assets: 0 (no effect)
- Total Current Liabilities: 0 (no effect)
- Net Working Capital: 0 (no effect)
- Current Ratio: 0 (no effect)
g. Cash is obtained through long-term bank loans.
- Total Current Assets: + (increases)
- Total Current Liabilities: - (decreases)
- Net Working Capital: 0 (no effect)
- Current Ratio: 0 (no effect)
h. A profitable firm increases its fixed assets depreciation allowance account.
- Total Current Assets: 0 (no effect)
- Total Current Liabilities: 0 (no effect)
- Net Working Capital: 0 (no effect)
- Current Ratio: 0 (no effect)
i. Current operating expenses are paid.
- Total Current Assets: - (decreases)
- Total Current Liabilities: - (decreases)
- Net Working Capital: 0 (no effect)
- Current Ratio: 0 (no effect)
j. Ten-year notes are issued to pay off accounts payable.
- Total Current Assets: 0 (no effect)
- Total Current Liabilities: + (increases)
- Net Working Capital: 0 (no effect)
- Current Ratio: - (decreases)
k. Accounts receivable are collected.
- Total Current Assets: + (increases)
- Total Current Liabilities: 0 (no effect)
- Net Working Capital: + (increases)
- Current Ratio: + (increases)
l. Equipment is purchased with short-term notes.
- Total Current Assets: 0 (no effect)
- Total Current Liabilities: - (decreases)
- Net Working Capital: 0 (no effect)
- Current Ratio: 0 (no effect)
m. Merchandise is purchased on credit.
- Total Current Assets: + (increases)
- Total Current Liabilities: + (increases)
- Net Working Capital: 0 (no effect)
- Current Ratio: 0 (no effect)
n. The estimated taxes payable are increased.
- Total Current Assets: 0 (no effect)
- Total Current Liabilities: + (increases)
- Net Working Capital: - (decreases)
- Current Ratio: - (decreases)
o. Marketable securities are sold below cost.
- Total Current Assets: - (decreases)
- Total Current Liabilities: 0 (no effect)
- Net Working Capital: - (decreases)
- Current Ratio: - (decreases)