ACC 305 - Assignmnent
loka9502
ashford_305_guidance_week_one.docExercise 3-18
See Audio Video for Guidance to Exercise 3-18 and then complete and submit problem with same information except change the following:
Nov 13
|
New Values |
|
|
Inventories |
2100000 |
|
Total assets |
7000000 |
SHOW YOUR WORK
Answers:
Current Assets = ______________
Shareholders Equity = ______________
Non-Current Assets = ______________
Long Term Liabilities = ______________
Answer for 3-18
1. Acid-test ratio = 1.20 Acid-test ratio = Quick assets ÷ Current liabilities =
Quick assets = Current assets - Inventories So a new definition of Quick assets = Current assets - $840,000 Current Ratio
Current Ratio = Current assets ÷ Current liabilities = 2.25 Acid-test Ratio = Current assets - $840,000 ÷ Current liabilities = 1.20
Therefore just inventory = $840,000 ÷ Current liabilities = 1.05
Divide both sides by 1.05, then Current liabilities = $800,000
Substitute current liabilities into the Current Ratio equation
Current Ratio = Current assets ÷ Current liabilities =
2.25 = Current assets ÷ $800,000
Multiply both sides by 800,000 Current assets = $1,800,000
2. Debt to equity ratio = Total liabilities ÷ Shareholders’ equity = 1.8 Total liabilities + Shareholders' equity = Total assets
Total assets are $2,800,000, so Total assets equal Total liabilities + Shareholders' equity = $2,800,000
So total liabilities are 1.8 times as big as shareholders equity Let x equal shareholders' equity 1.8 x + x = $2,800,000
2.8x = $2,800,000
Divide both sides by 2.8 x = $1,000,000 = Shareholders' equity
3. Noncurrent assets = Total assets - Current assets Noncurrent assets = $2,800,000 – 1,800,000 = $1,000,000
4. Long-term liabilities = Total assets - Current liabilities - Shareholders' equity Long-term liabilities = $2,800,000 - 800,000 - 1,000,000 = $1,000,000
Exercise 3-20
Exercise 3-20
The only method to ascertain the answers to these ratio questions, other
than guessing is to calculate the effect on the ratio.
I have set up the following values that will be used to calculate the ratios:
Trial Balance
Cash2000
Accounts receivable2000
Investments2500
Prepaids3000
Inventories4000
Equipment2500
Current liabilities2000
Total liabilities10000
Total shareholders equity20000
Below, I place the ratio formula in each cell. Note that I place a $ before the column letter and
a $ before the row number. This is so the formula will not change when I copy the formula down to the
other actions.
I review the action and ascertain what accounts would be affected by the action, and then
I the change the amounts above in the trial balance to ascertain the effect of the "action" on the ratio
For example: Issuance of long term bonds will increase cash and increase long term liabilities.
I will change cash from 1000 to 2000 and total liabilities from 9000 to 10,000
When you change cash and total liabilities, the current ratio changes from 6.25 to 6.75 it increased
The Acid test ratio changed from 2.75 to 3.25, it increased.
The Debt to Equity ratio changed from .45 to to .5, it increased.
INSTRUCTIONS:
Download the Excel file shown below
The Excel file is located right below the download for the guidance report
Complete the Excel spreadsheet and insert back into this guidance report
ActionCurrent RatioI/D/No effectAcid Test RatioI/D/No effectDebt to Equity RatioI/D/No effect
Issuance of long term bonds6.75I3.25I0.5No effect
Issuance of short term notes
Payment of accounts payable
Purchase of inventory on account
Purchase of inventory for cash
Purchase of equipment with a four year note
Retirement of bonds
Sale og common stock
Write off of obsolete inventory
Purchase of short term investment for cash
Decision to refinance on a long term basis
some currently maturing debt
Case 3-5
I compared the case balance sheet to the chapter balance sheets to answer this question.
Accounts that should be added:
___________________________
Accounts that should be reclassified:
1. ___________________________
2. ___________________________
3. ___________________________
4. ___________________________
Continued on next page.
5. ___________________________
6. ___________________________
7. ___________________________
8. ___________________________
Additional Disclosures needed:
1. ___________________________
2. ___________________________
3. ___________________________
4. ___________________________
5. ___________________________
