Problem
Robin Incorporated has the following potential transactions involving current assets and current liabilities.
1. Accounts receivable of $20,000 are collected.
2. Equipment is purchased for $37,000 cash.
3. Equipment is purchased by signing a 1-year, $37,000 note.
4. Paid $6,000 for a 3-year insurance policy.
5. Paid $16,000 of accounts payable.
6. Cash dividends of $7,000 are declared.
7. Borrowed $40,000 by signing a short-term note payable.
8. Paid $50,000 short-term note payable.
As of the beginning of the month, current assets were $175,000, and current liabilities were $120,000. Current assets included $45,000 of inventory and $5,000 of prepaid expenses.
Instructions:
(a) Compute the current ratio as of the beginning of the month.
(b) Compute the current ratio after each transaction. Treat each transaction independently (assume each occurs on the first day of the month, and no other transactions have affected the beginning-of-month balances.