Reference no: EM13479200

The Lux Company experiences the following unrelated events and transactions during Year 1.The company"s existing current ratio is 2:1 and its quick ratio is 1.2:1.

1. Lux wrote off $5,000 of accounts receivable as uncollectible.

2. A bank notifies Lux that a customer"s check for $411 is returned marked insufficient funds. The customer is bankrupt.

3. The owners of Lux Company make an additional cash investment of $7,500.

4. Inventory costing $600 is judged obsolete when a physical inventory is taken.

5. Lux declares a $5,000 cash dividend to be paid during the first week of the next reporting period.

6. Lux purchases long-term investments for $10,000.

7. Accounts payable of $9,000 are paid.

8. Lux borrows $1,200 from a bank and gives a 90-day, 6% promissory note in exchange.

9. Lux sells a vacant lot for $20,000 that had been used in its operations.

10. A three-year insurance policy is purchased for $1,500.

Required:

Separately evaluate the immediate effect of each transaction on the company"s:

a. Current ratio

b. Quick (acid-test) ratio

c. Working capital