Answer:
Gwynn Incorporated
Current Ratio After Each Transaction:
Feb. 1, 2017: Current Ratio = 3:1
Feb. 3, 2017: Current Ratio = 3:1
Feb. 7, 2017: Current Ratio = 2.43:1
Feb. 11, 2017: Current Ratio = 2.35:1
Feb. 14, 2017: Current Ratio = 2.93:1
Feb. 18, 2017: Current Ratio = 2.56
Explanation:
a) Data and Calculations:
February 1, 2017:
Current Assets = $120,000
Current Liabilities = $40,000
February 1, 2017: Current Ratio = $120,000/$40,000 = 3:1
Transactions:
Feb. 3 Collected accounts receivable of $15,000.
Current Assets = $120,000 (+$15,000 - $15,000)
Current Liabilities = $40,000
Current ratio = $120,000/$40,000 = 3:1
7 Purchased equipment for $23,000 cash.
Current Assets =$97,000 ($120,000 - $23,000)
Current Liabilities = $40,000
Current ratio = $97,000/$40,000 = 2.43:1
11 Paid $3,000 for a 1-year insurance policy.
Current Assets =$94,000 ($97,000 - $3,000)
Current Liabilities = $40,000
Current ratio = $94,000/$40,000 = 2.35:1
14 Paid accounts payable of $12,000.
Current Assets =$82,000 ($94,000 - $12,000)
Current Liabilities = $28,000 ($40,000 - $12,000)
Current ratio = $82,000/$28,000 = 2.93:1
18 Declared cash dividends, $4,000.
Current Assets =$82,000
Current Liabilities = $32,000 ($28,000 + $4,000)
Current ratio = $82,000/$32,000 = 2.56
b) The current ratio is one of the working capital ratios that show the relationship between current assets and current liabilities. It is computed as Current Assets divided by Current Liabilities.
