ACCOUNTING

Question 1

Brief Exercise 24-8

Answer each of the questions in the following unrelated situations. (a) The current ratio of a company is 5:1 and its acid-test ratio is 1:1. If the inventories and prepaid items amount to $500,000, what is the amount of current liabilities?

Current Liabilities $http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

(b) A company had an average inventory last year of $200,000 and its inventory turnover was 5. If sales volume and unit cost remain the same this year as last and inventory turnover is 8 this year, what will average inventory have to be during the current year?  (Round answer to 0 decimal places, e.g. 125.)

Average Inventory $http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

(c) A company has current assets of $90,000 (of which $40,000 is inventory and prepaid items) and current liabilities of $40,000. What is the current ratio? What is the acid-test ratio? If the company borrows $15,000 cash from a bank on a 120-day loan, what will its current ratio be? What will the acid-test ratio be?  (Round answers to 2 decimal places, e.g. 2.50.)

Current Ratio http://edugen.wileyplus.com/edugen/art2/common/pixel.gif  :1
Acid Test Ratio http://edugen.wileyplus.com/edugen/art2/common/pixel.gif  :1
New Current Ratio http://edugen.wileyplus.com/edugen/art2/common/pixel.gif  :1
New Acid Test Ratio http://edugen.wileyplus.com/edugen/art2/common/pixel.gif  :1

(d) A company has current assets of $600,000 and current liabilities of $240,000. The board of directors declares a cash dividend of $180,000. What is the current ratio after the declaration but before payment? What is the current ratio after the payment of the dividend?  (Round answers to 2 decimal places, e.g. 2.50.)

Current ratio after the declaration but before payment http://edugen.wileyplus.com/edugen/art2/common/pixel.gif  :1
Current ratio after the payment of the dividend http://edugen.wileyplus.com/edugen/art2/common/pixel.gif  :1
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Question 2

Brief Exercise 24-9

Heartland Company’s budgeted sales and budgeted cost of goods sold for the coming year are $144,000,000 and $99,000,000, respectively. Short-term interest rates are expected to average 10%. If Heartland can increase inventory turnover from its present level of 9 times a year to a level of 12 times per year. Compute its expected cost savings for the coming year.

Expected Cost Savings $http://edugen.wileyplus.com/edugen/art2/common/pixel.gif

Question 3

Brief Exercise 24-3 (Essay)

Morlan Corporation is preparing its December 31, 2014, financial statements. Two events that occurred between December 31, 2014, and March 10, 2015, when the statements were issued, are described below.

1. A liability, estimated at $160,000 at December 31, 2014, was settled on February 26, 2015, at $170,000.
2. A flood loss of $80,000 occurred on March 1, 2015.

What effect do these subsequent events have on 2014 net income?

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Question 4

Brief Exercise 24-2 (Essay)

An annual report of Ford Motor Corporation states, “Net income a share is computed based upon the average number of shares of capital stock of all classes outstanding. Additional shares of common stock may be issued or delivered in the future on conversion of outstanding convertible debentures, exercise of outstanding employee stock options, and for payment of defined supplemental compensation. Had such additional shares been outstanding, net income a share would have been reduced by 10¢ in the current year and 3¢ in the previous year. As a result of capital stock transactions by the company during the current year (primarily the purchase of Class A Stock from Ford Foundation), net income a share was increased by 6¢.” What information is provided by this note?

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