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Fundamentals of Financial Accounting 4th Edition by Fred Phillips,Robert Libby,Patricia Libby
Edition 4ISBN: 978-0078025372Fundamentals of Financial Accounting 4th Edition by Fred Phillips,Robert Libby,Patricia Libby
Edition 4ISBN: 978-0078025372 Exercise 54
Determining the Impact of Current Liability Transactions, Including Analysis of the Quick Ratio
Bryant Company sells a wide range of inventories, which are initially purchased on account. Occasionally, a short-term note payable is used to obtain cash for current use. The following transactions were selected from those occurring during 2013:
a. On January 10, 2013, purchased merchandise on credit for $18,000. The company uses a perpetual inventory system.
b. On March 1, 2013, borrowed $40,000 cash from City Bank and signed a promissory note with a face amount of $40,000, due at the end of six months, accruing interest at an annual rate of 8 percent, payable at maturity.
Required:
1. For each of the transactions, indicate the accounts, amounts, and effects (+ for increase, for decrease, and NE for no effect) on the accounting equation. Use the following structure:
2. What amount of cash is paid on the maturity date of the note
3. Discuss the impact of each transaction on the quick ratio. (Assume Bryant Company's quick ratio was 1.10 prior to each transaction.)
Bryant Company sells a wide range of inventories, which are initially purchased on account. Occasionally, a short-term note payable is used to obtain cash for current use. The following transactions were selected from those occurring during 2013:
a. On January 10, 2013, purchased merchandise on credit for $18,000. The company uses a perpetual inventory system.
b. On March 1, 2013, borrowed $40,000 cash from City Bank and signed a promissory note with a face amount of $40,000, due at the end of six months, accruing interest at an annual rate of 8 percent, payable at maturity.
Required:
1. For each of the transactions, indicate the accounts, amounts, and effects (+ for increase, for decrease, and NE for no effect) on the accounting equation. Use the following structure:
2. What amount of cash is paid on the maturity date of the note
3. Discuss the impact of each transaction on the quick ratio. (Assume Bryant Company's quick ratio was 1.10 prior to each transaction.)
Explanation
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(1)
For each of the transactions, indic...
Fundamentals of Financial Accounting 4th Edition by Fred Phillips,Robert Libby,Patricia Libby
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