5.9. Determine the effect on the current ratio, the quick ratio, net working capital (current assets less current liabilities), and the debt ratio (total liabilities to total assets) of each of the following transactions. Consider each transaction separately and assume that prior to each transaction the current ratio is 2X, the quick ratio is 1X, and the debt ratio is 50%. The company uses an allowance for doubtful accounts. Use I for increase, D for decrease, and N for no change. (a) Borrows $10,000 from bank on short-term note (b) Writes off a $5,000 customer account (c) Issues $25,000 in new common stock for cash (d) Purchases for cash $7,000 of new equipment (e) Inventory of $5,000 is destroyed by fire (f) Invests $3,000 in short-term marketable securities (g) Issues $10,000 long-term bonds (h) Sells equipment with book value of $6,000 for $7,000 (i) Issues $10,000 stock in exchange for land (j) Purchases $3,000 inventory for cash (k) Purchases $5,000 inventory on credit (1) Pays $2,000 to supplier to reduce account payable Current Quick Ratio Ratio ABC's and XYZ's Net Working Capital Debt Ratio belo gal to present
5.9. Determine the effect on the current ratio, the quick ratio, net working capital (current assets less current liabilities), and the debt ratio (total liabilities to total assets) of each of the following transactions. Consider each transaction separately and assume that prior to each transaction the current ratio is 2X, the quick ratio is 1X, and the debt ratio is 50%. The company uses an allowance for doubtful accounts. Use I for increase, D for decrease, and N for no change. (a) Borrows $10,000 from bank on short-term note (b) Writes off a $5,000 customer account (c) Issues $25,000 in new common stock for cash (d) Purchases for cash $7,000 of new equipment (e) Inventory of $5,000 is destroyed by fire (f) Invests $3,000 in short-term marketable securities (g) Issues $10,000 long-term bonds (h) Sells equipment with book value of $6,000 for $7,000 (i) Issues $10,000 stock in exchange for land (j) Purchases $3,000 inventory for cash (k) Purchases $5,000 inventory on credit (1) Pays $2,000 to supplier to reduce account payable Current Quick Ratio Ratio ABC's and XYZ's Net Working Capital Debt Ratio belo gal to present
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
SM3
Transcribed Image Text:5.9. Determine the effect on the current ratio, the quick ratio, net working capital (current
assets less current liabilities), and the debt ratio (total liabilities to total assets) of each of
the following transactions. Consider each transaction separately and assume that prior
to each transaction the current ratio is 2X, the quick ratio is 1X, and the debt ratio is 50%.
The company uses an allowance for doubtful accounts.
Use I for increase, D for decrease, and N for no change.
(a) Borrows $10,000 from bank on
short-term note
(b) Writes off a $5,000 customer account
(c) Issues $25,000 in new common stock
for cash
(d) Purchases for cash $7,000 of new equipment
(e) Inventory of $5,000 is destroyed by fire
(f) Invests $3,000 in short-term marketable
securities
(g) Issues $10,000 long-term bonds
(h) Sells equipment with book value of
$6,000 for $7,000
(i) Issues $10,000 stock in exchange for land
(j) Purchases $3,000 inventory for cash
(k) Purchases $5,000 inventory on credit
(1) Pays $2,000 to supplier to reduce account
payable
Current
Ratio
Quick
Ratio
veen ABC's and XYZ's
Net Working
Capital
Debt
Ratio
ring a proposal to present
111-
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