Introduction:
To calculate:
The new current ratio after considering the recent transactions.
Answer to Problem 11E
The updated current ratio is 1.63:1.
Explanation of Solution
Given:
Current assets = $54,000
Current ratio = 1.80:1
- Merchandise purchased for $6,000 on account Purchase of merchandise on account will increase the current assets as well as the current liabilities by the same amount.
- Delivery truck purchased for $10,000 by paying $1,000 in cash and for the balanced amount signing a two years promissory note.
New Values
Current Assets = $54,000 + $6,000 = $60,000
Current liabilities = $30,000 + $6,000 = $36,000
New ratio:
Purchasing a delivery truck is a part of fixed asset so it will not impact the current assets. However, part of cash payment made for the truck will reduce the current asset. Signing a promissory note for a period of more than one year is a part of non-current liability. Therefore, it will not have any impact on the current liabilities.
New values:
Current assets = $60,000 - $1,000 = $59,000
Current liabilities = $36,000
New ratio:
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Chapter 13 Solutions
Managerial Accounting
- The following items were selected from among the transactions completed by Sherwood Co. during the current year: Mar 1. Purchased merchandise on account from Kirkwood Co., $175,000, terms n/30. Mar 31. Issued a 30-day, 6% note for $175,000 to Kirkwood Co., on account. Apr 30. Paid Kirkwood Co. the amount owed on the note of March 31. June 1. Borrowed $400,000 from Triple Creek Bank, issuing a 45-day, 5% note. July 1. Purchased tools by issuing a $45,000, 60-day note to Poulin Co., which discounted the note at the rate of 7% July 16. Paid Triple Creek Bank the interest due on the note of June 1 and renewed the loan by issuing a new 30-day, 6% note for $400,000. (Journalize both the debit and credit to the notes payable account.) Aug 15. Paid Triple Creek Bank the amount due on the note of July 16. Aug 30. Paid Poulin Co. the amount due on the note of July 1. Dec 1. Purchased equipment from Greenwood Co. for $260,000, paying $40,000 cash and issuing a series of ten 9% notes for $22,000…arrow_forwardThe following items were selected from among the transactions completed by Sherwood Co. during the current year: Mar. 1 Purchased merchandise on account from Kirkwood Co., $225,000, terms n/30. 31 Issued a 30-day, 8% note for $225,000 to Kirkwood Co., on account. Apr. 30 Paid Kirkwood Co. the amount owed on the note of March 31. Jun. 1 Borrowed $600,000 from Triple Creek Bank, issuing a 45-day, 6% note. Jul. 1 Purchased tools by issuing a $50,000, 60-day note to Poulin Co., which discounted the note at the rate of 6%. 16 Paid Triple Creek Bank the interest due on the note of June 1 and renewed the loan by issuing a new 30-day, 7% note for $600,000. (Journalize both the debit and credit to the notes payable account.) Aug. 15 Paid Triple Creek Bank the amount due on the note of July 16. 30 Paid Poulin Co. the amount due on the note of July 1. Dec. 1 Purchased equipment from Greenwood Co. for $280,000, paying $80,000 cash and issuing a series of ten 9% notes for…arrow_forwardThe following items were selected from among the transactions completed by Sherwood Co. during the current year: Mar. 1 Purchased merchandise on account from Kirkwood Co., $225,000, terms n/30. 31 Issued a 30-day, 8% note for $225,000 to Kirkwood Co., on account. Apr. 30 Paid Kirkwood Co. the amount owed on the note of March 31. Jun. 1 Borrowed $600,000 from Triple Creek Bank, issuing a 45-day, 6% note. Jul. 1 Purchased tools by issuing a $50,000, 60-day note to Poulin Co., which discounted the note at the rate of 6%. 16 Paid Triple Creek Bank the interest due on the note of June 1 and renewed the loan by issuing a new 30-day, 7% note for $600,000. (Journalize both the debit and credit to the notes payable account.) Aug. 15 Paid Triple Creek Bank the amount due on the note of July 16. 30 Paid Poulin Co. the amount due on the note of July 1. Dec. 1 Purchased equipment from Greenwood Co. for $280,000, paying $80,000 cash and issuing a series of ten 9% notes for…arrow_forward
- The following items were selected from among the transactions completed by Sherwood Co. during the current year: Mar. 1 Purchased merchandise on account from Kirkwood Co., $225,000, terms n/30. 31 Issued a 30-day, 8% note for $225,000 to Kirkwood Co., on account. Apr. 30 Paid Kirkwood Co. the amount owed on the note of March 31. Jun. 1 Borrowed $600,000 from Triple Creek Bank, issuing a 45-day, 6% note. Jul. 1 Purchased tools by issuing a $50,000, 60-day note to Poulin Co., which discounted the note at the rate of 6%. 16 Paid Triple Creek Bank the interest due on the note of June 1 and renewed the loan by issuing a new 30-day, 7% note for $600,000. (Journalize both the debit and credit to the notes payable account.) Aug. 15 Paid Triple Creek Bank the amount due on the note of July 16. 30 Paid Poulin Co. the amount due on the note of July 1. Dec. 1 Purchased equipment from Greenwood Co. for $280,000, paying $80,000 cash and issuing a series of ten 9% notes for…arrow_forwardThe following items were selected from among the transactions completed by Sherwood Co. during the current year: Mar. 1 Purchased merchandise on account from Kirkwood Co., $390,000, terms n/30. 31 Issued a 30-day, 10% note for $390,000 to Kirkwood Co., on account. Apr. 30 Paid Kirkwood Co. the amount owed on the note of March 31. Jun. 1 Borrowed $156,000 from Triple Creek Bank, issuing a 45-day, 8% note. Jul. 1 Purchased tools by issuing a $216,000, 60-day note to Poulin Co., which discounted the note at the rate of 6%. 16 Paid Triple Creek Bank the interest due on the note of June 1 and renewed the loan by issuing a new 30-day, 6.5% note for $156,000. (Journalize both the debit and credit to the notes payable account.) Aug. 15 Paid Triple Creek Bank the amount due on the note of July 16. 30 Paid Poulin Co. the amount due on the note of July 1. Dec. 1 Purchased equipment from Greenwood Co. for $500,000, paying $150,000 cash and issuing a series of ten 8%…arrow_forwardThe following items were selected from among the transactions completed by Sherwood Co. during the current year: Mar. 1 Purchased merchandise on account from Kirkwood Co., $215,000, terms n/30. 31 Issued a 30-day, 6% note for $215,000 to Kirkwood Co., on account. Apr. 30 Paid Kirkwood Co. the amount owed on the note of March 31. Jun. 1 Borrowed $400,000 from Triple Creek Bank, issuing a 45-day, 8% note. Jul. 1 Purchased tools by issuing a $60,000, 60-day note to Poulin Co., which discounted the note at the rate of 6%. 16 Paid Triple Creek Bank the interest due on the note of June 1 and renewed the loan by issuing a new 30-day, 9% note for $400,000. (Journalize both the debit and credit to the notes payable account.) Aug. 15 Paid Triple Creek Bank the amount due on the note of July 16. 30 Paid Poulin Co. the amount due on the note of July 1. Dec. 1 Purchased equipment from Greenwood Co. for $320,000, paying $120,000 cash and issuing a series of ten 6% notes for…arrow_forward
- The following items were selected from among the transactions completed by Sherwood Co. during the current year: Mar. 1 Purchased merchandise on account from Kirkwood Co., $175,000, terms n/30. 31 Issued a 30-day, 6% note for $175,000 to Kirkwood Co., on account. Apr. 30 Paid Kirkwood Co. the amount owed on the note of March 31. Jun. 1 Borrowed $400,000 from Triple Creek Bank, issuing a 45-day, 5% note. Jul. 1 Purchased tools by issuing a $45,000, 60-day note to Poulin Co., which discounted the note at the rate of 7%. 16 Paid Triple Creek Bank the interest due on the note of June 1 and renewed the loan by issuing a new 30-day, 6% note for $400,000. (Journalize both the debit and credit to the notes payable account.) Aug. 15 Paid Triple Creek Bank the amount due on the note of July 16. 30 Paid Poulin Co. the amount due on the note of July 1. Dec. 1 Purchased equipment from Greenwood Co. for $260,000, paying $40,000 cash and issuing a series of ten 9% notes for…arrow_forwardThe following items were selected from among the transactions completed by Shin Co. during the current year: Jan. 10. Purchased merchandise on account from Beckham Co., $420,000, terms n/30. Feb. 9. Issued a 30-day, 6% note for $420,000 to Beckham Co., on account. Mar. 11. Paid Beckham Co. the amount owed on the note of February 9. May 1. Borrowed $240,000 from Verity Bank, issuing a 45-day, 5% note. June 1. Purchased tools by issuing a $312,000, 60-day note to Rassmuessen Co., which discounted the note at the rate of 5%. 15. Paid Verity Bank the interest due on the note of May 1 and renewed the loan by issuing a new 45-day, 7% note for $240,000. (Journalize both the debit and credit to the notes payable account.) July 30. Paid Verity Bank the amount due on the note of June 15. 30. Paid Rassmuessen Co. the amount due on the note of June 1. Dec. 1. Purchased office equipment from Lambert Co. for $700,500 paying $160,500 and issuing a series of ten 5% notes for $54,000 each, coming due…arrow_forwardThe following items were selected from among the transactions completed by O'Donnel Co. during the current year: Jan. 10. Purchased merchandise on account from Laine Co., $240,000, terms n/30. Issued a 30-day, 4% note for $240,000 to Laine Co., on account. Feb. 9. Mar. 11. Paid Laine Co. the amount owed on the note of February 9. May 1. Borrowed $160,000 from Tabata Bank, issuing a 45-day, 5% note. June 1. Purchased tools by issuing a $180,000, 60-day note to Gibala Co., which discounted the note at the rate of 5%. 15. Paid Tabata Bank the interest due on the note of May 1 and renewed the loan by issuing a new 45-day, 7% note for $160,000. (Journalize both the debit and credit to the notes payable account.) July 30. Paid Tabata Bank the amount due on the note of June 15. 30. Paid Gibala Co. the amount due on the note of June 1. Dec. 1. Purchased office equipment from Warick Co. for $400,000, paying $100,000 and issuing a series of ten 5% notes for $30,000 each, coming due at 30-day…arrow_forward
- The following items were selected from among the transactions completed by Shin Co. during the current year: Jan. 10. Purchased merchandise on account from Beckham Co., $420,000, terms n/30. Feb. 9. Issued a 30-day, 6% note for $420,000 to Beckham Co., on account. Mar. 11. Paid Beckham Co. the amount owed on the note of February 9. May 1. Borrowed $240,000 from Verity Bank, issuing a 45-day, 5% note. June 1. Purchased tools by issuing a $312,000, 60-day note to Rassmuessen Co., which discounted the note at the rate of 5%. 15. Paid Verity Bank the interest due on the note of May 1 and renewed the loan by issuing a new 45-day, 7% note for $240,000. (Journalize both the debit and credit to the notes payable account.) July 30. Paid Verity Bank the amount due on the note of June 15. 30. Paid Rassmuessen Co. the amount due on the note of June 1. Dec. 1. Purchased office equipment from Lambert Co. for $700,500 paying…arrow_forwardThe following items were selected from among the transactions completed by Sherwood Co. during the current year: Feb. 15. Purchased merchandise on account from Kirkwood Co., $144,000, terms n/30. Mar. 17. Issued a 60-day, 7% note for $144,000 to Kirkwood Co., on account. May 16. Paid Kirkwood Co. the amount owed on the note of March 17. June 15. Borrowed $136,800 from Triple Creek Bank, issuing a 60-day, 8% note. July 21. Purchased tools by issuing a $114,000, 90-day note to Poulin Co., which discounted the note at the rate of 7%. Aug. 14. Paid Triple Creek Bank the interest due on the note of June 15 and renewed the loan by issuing a new 60-day, 10% note for $136,800. (Journalize both the debit and credit to the notes payable account.) Oct. 13. Paid Triple Creek Bank the amount due on the note of August 14. Oct. 19. Paid Poulin Co. the amount due on the note of July 21. Dec. 1. Purchased office equipment from Greenwood Co. for $144,000, paying $24,000 cash and…arrow_forwardThe following items were selected from among the transactions completed by O’Donnel Co. during the current year:Jan. 10. Purchased merchandise on account from Laine Co., $240,000, terms n/30.Feb. 9. Issued a 30-day, 4% note for $240,000 to Laine Co., on account.Mar. 11. Paid Laine Co. the amount owed on the note of February 9.May 1. Borrowed $160,000 from Tabata Bank, issuing a 45-day, 5% note.June 1. Purchased tools by issuing a $180,000, 60-day note to Gibala Co., which discounted the note at the rate of 5%.15. Paid Tabata Bank the interest due on the note of May 1 and renewed the loan by issuing a new 45-day, 7% note for $160,000. (Journalize both the debit and credit to the notes payable account.)July 30. Paid Tabata Bank the amount due on the note of June 15.30. Paid Gibala Co. the amount due on the note of June 1.Dec. 1. Purchased office equipment from Warick Co. for $400,000, paying $100,000 and issuing a series of ten 5% notes for $30,000 each, coming due at 30-day…arrow_forward
- Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning