Current Ratio : The liquidity ratio which measures a company’s ability to pay its short-term liabilities by using the short-term assets of the company is called current ratio. It is computed by dividing the current assets by the current liabilities of the company. Debt Ratio: Debt ratio is metric which measures the proportion of borrowed funds in financing the assets of the company. Debt ratio is evaluated by dividing the overall debt of a company by the total asset of the company. Earnings per Share: Earnings per share is profitability ratio which measures how much profit is earned for each outstanding share of a company. It is computed by dividing the net income available for common stockholders by the number of outstanding common stock. To determine: 1. Compute current ratio, debt ratio, and earnings per share of Style Traveler. 2. Compute the three ratios after evaluating the effect of each transaction provided.

Question

Discuss the accounting treatment for investments in debt and equity securities.

Answer 1

Question

Chapter 17, Problem P17.26APGA

To determine

Current Ratio:

The liquidity ratio which measures a company’s ability to pay its short-term liabilities by using the short-term assets of the company is called current ratio. It is computed by dividing the current assets by the current liabilities of the company.

Debt Ratio:

Debt ratio is metric which measures the proportion of borrowed funds in financing the assets of the company. Debt ratio is evaluated by dividing the overall debt of a company by the total asset of the company.

Earnings per Share:

Earnings per share is profitability ratio which measures how much profit is earned for each outstanding share of a company. It is computed by dividing the net income available for common stockholders by the number of outstanding common stock.

To determine:

1. Compute current ratio, debt ratio, and earnings per share of Style Traveler.

2. Compute the three ratios after evaluating the effect of each transaction provided.

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Discuss the accounting treatment for investments in debt and equity securities.

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