Answered Essay: Koto Corporation began the month of June with $300,000 of current assets, a current ratio of 2.5: 1, and an acid-test ratio of 1.4: 1

Koto Corporation began the month of June with $300,000 of current assets, a current ratio of 2.5:1, and an acid-test ratio of 1.4:1. During the month, it completed the following transactions (the compay a perpetual inventory system). ng June 1 Sold merchandise inventory that cost $75,000 for $120,000 cash. 3 Collected $88,000 cash on an account receivable. 5 Purchased $150,000 of merchandise inventory on credit. 7 Borrowed $100,000 cash by giving the bank a 60-day, 10% note. 10 Borrowed $120,000 cash by signing a long-term secured note. 12 Purchased machinery for $275,000 cash. 15 Declared a $I per share cash dividend on its 80,000 shares of outstanding common stock. 19 Wrote off a $5,000 bad debt against the Allowance for Doubtful Accounts account 22 Paid $12,000 cash to settle an account payable. 30 Paid the dividend declared on June 15. Required Prepare a table showing the companys (I) current ratio, (2) acid-test ratio, and (3) working capital after each transaction. Round ratios to two decimals. Please show step by step.

Koto Corporation began the month of June with $300,000 of current assets, a current ratio of 2.5: 1, and an acid-test ratio of 1.4: 1. During the month, it completed the following transactions (the company a perpetual inventory system). June 1 Sold merchandise inventory that cost $75,000 for $120,000 cash. 3 Collected $88,000 cash on an account receivable. 5 Purchased $150,000 of merchandise inventory on credit. 7 Borrowed $100,000 cash by giving the bank a 60-day, 10% note. 10 Borrowed $120,000 cash by signing a long-term secured note. 12 Purchased machinery for $275,000 cash. 15 Declared a $1 per share cash dividend on its 80,000 shares of outstanding common stock. 19 Wrote off a $5,000 bad debt against the Allowance for Doubtful Accounts account. 22 Paid $12,000 cash to settle an account payable. 30 Paid the dividend declared on June 15. Prepare a table showing the company’s (I) current ratio, (2) acid-test ratio, and (3) working capital after each transaction. Round ratios to two decimals.

Expert Answer

 

(1) Current ratio is the current assets divided by current liabilities

(2) Acid test ratio is the current assets minus prepaid minus inventory divided by current liabilities

(3) Working capital is the difference between current assets and current liabilities.

Table showing ratios is as shown below:

Transaction Current assets Quick Assets Current Liabilities Current Ratio Acid- Test Ratio Working Capital
(a) (b) (c ) a/c b/c a-c
Beginning Balance 300,000 168,000 120,000 2.50 1.40 180,000
Jun-01 120,000 120,000
-75,000
Balance 345,000 288,000 120,000 2.88 2.40 225,000
Jun-03 88,000 88,000
-88,000 -88,000
Balance 345,000 288,000 120,000 2.88 2.40 225,000
Jun-05 150,000 150,000
Balance 495,000 288,000 270,000 1.83 1.07 225,000
Jun-07 100,000 100,000 100,000
Balance 595,000 388,000 370,000 1.61 1.05 225,000
Jun-10 120,000 120,000
Balance 715,000 508,000 370,000 1.93 1.37 345,000
Jun-12 -275,000 -275,000
Balance 440,000 233,000 370,000 1.19 0.63 70,000
Jun-15 80,000
Balance 440,000 233,000 450,000 0.98 0.52 -10,000
Jun-19 0 0
Balance 440,000 233,000 450,000 0.98 0.52 -10,000
Jun-22 -12,000 -12,000 -12,000
Balance 428,000 221,000 438,000 0.98 0.50 -10,000
Jun-30 -80,000 -80,000 -80,000
Balance 348,000 141,000 358,000 0.97 0.39 -10,000
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