BUSI 101 1st Edition Lecture 6Outline of Last Lecture I. Review of the Four Financial StatementsII. Chapter 3 In-Class Practice ProblemsIII. Pg. 20 ProblemsIV. Chapter 4 In-Class Practice ProblemsV. Pg. 86 Problems in Text BookOutline of Current Lecture II. Practice Exam QuestionsA. Working Capital and Current RatioIII. Problem 1 Chapter 4IV. Page 25 in Course PackCurrent LecturePractice Exam Question: Working Capital = (70,000)Current Ratio = .51. What are current assets? 70,0002. What are current liabilities? 140,000CA-CL=WCCA-CL=-70,000  .5CL-1Cl=-70,000CA/CL=.5 CA=(.5)CLThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute..5CL=70,000CL=140,000CA=70,000What is the effect on working capital and the current ratio if:a) Cash is received from a customer on account NOW a b cCA 70,000 70,000 40,000 100,000CL 140,000 140,000 110,000 170,000WC -70,000 -70,000 -70,000 -70,000CR .5 .5 .36 .588Cash (A) 10,000A/R (A) 10,000b) Short term debt is paid offSTD (L) 30,000Cash (A) 30,000c) What is the effect on current ratio and working capital if inventory is purchased on accountInventory (A) 30,000A/P (L) 30,000Debit: Lef Credit: RightAssets+ -Expenses+ -Liabilities- +Owner’s Equity- +Revenue- +Problem 1 Chapter 4 (pg.119)a) Cash (A) 30,000Common Stock (OE) 30,000b) Cash (A) 15,000Notes Payable (L) 15,000c) EQ. (A) 19,000Cash (A) 19,000d) Machinery (A) 11,000A/P (L) 11,000e) Cash (A) 2,000A/R (A) 12,000Service Revenue (R) 14,000f) Rent Expense (E) 5,000Cash (A) 5,000g) Retained Earnings (OE) 3,000Cash (A) 3,000h) Inventory (A) 10,000A/P (L) 10,000i) Cash (A) 7,000A/R (A) 11,000Sales (R) 18,000Cost of Good Sold (E) 10,000Inventory (A) 10,000Gross Profit = Sales-Cost of Goods SoldGross Profit = 8,000j) A/P (L) 10,000Cash (A) 10,000k) Cash (A) 11,000A/R (A) 11,000Pg. 25 in Course Pack3. a) Cash (A) 45000N/P (L) 4500b) Cash (A) 10,000C.S. (OE) 10,000c) Inventory (A) 2,000A/P (L) 2,000D1) A/R (A) 600Sales (R) 600D2) CGS (E) 400Inventory (A) 400E) EQ (A) 500Cash (A) 500F) Cash (A) 600A/R (A) 600G) A/P (L) 2000Cash (A) 2,000H) Prepaid INS (A) 12,000Cash (A) 12,000I) Salary Expense (E) 3000Sal Payable (L) 3,000J) Sal Payable (L) 2900Cash (A) 29004. 5.A) No Revenue in May May: Cash (A) 1500U/R (L) 1500June: U/R (L) 1500Revenue (R) 1500B) 6000 Revenue in may February: INV (A) 3600Cash (A) 3600May: A/R (A) 6000Sales (R0) 6000May: CGS (E) 3600INV (A) 3600June: Cash (A) 6000A/R (A) 6000C) 3400 Revenue in May (ADD) May: Cash (A) 3400Service Revenue (R) 3400D)No Revenue in May (ADD) April: A/R (A) 2300Sales (A) 2300April: CGS (E)INV (A)May: Cash (A) 2300A/R (A) 230010.A) Inventory (A) 1800A/P (L) 1800B1) Cash (A) 4000 (200x$20) A/R (A) 800 (40x$20)Sales (R) 4800 (240x$20)B2)CGS (E) 1920INV (A) 1920 (240x$8)C) Cash (A) 500A/R (A) 500D) Cash (A) 400N/P (L) 400E) Retained Earnings (OE) 350Cash (A) 350F) Cash (A) 600C.S. (OE) 600G) EQ (A) 1000Cash (A) 1000H) A/P (L) 500Cash (A) 500I) Sal. Expense (E) 500Sal. Payable (L) 500J) Rent Expense (E) 300Cash (A) 300K) Prepay Insurance (A) 200Cash (A) 200L) Tax Expense (E) 110Cash (A) 110Trial BalanceDebit CreditCash 3540A/R 500INV 30PPI 200EQUIP 3000A/P 1900S/P 500400210040048001920500300110Total: 10,100 10,100Income StatementRev.Sales 4800Exp.CGS 1920S 500R 300T 110NI 1970Statement of Retained EarningsBeginning Retained Earnings 750+NI 1970=Available 2720-Dividends Declared 350End Retained Earnings 2370Balance SheetAssetsCash 3540A/R 500INV 30PPI 200EQ 30007270Liabilities+OEA/P 1900S/P 500N/O 400C.S. 2100RE