Chapter 3, Problem 3.28AE

  LO 6

(Learning Objective 6: Analyze and evaluate liquidity and debt-paying ability) Peyton Company reported these ratios at December 31, 2018 (dollar amounts In millions):

Current ratio = $\frac{\$20}{\$10}$ = 2.00

Debt ratio = $\frac{\$40}{\$70}$ = 0.07

  Peyton Company completed these transactions during 2019:

1. a. Purchased equipment on account, $5
2. b. Paid long-term debt, $5
3. c. Collected cash from customers in advance, $4
4. d. Accrued interest expense, $3
5. e. Made cash sales, $7

  Determine whether each transaction improved or hurt the company’s current ratio and debt ratio.