Burt Wilson Company reported these ratios at December 31, 2018 (dollar amounts i

Question

Burt Wilson Company reported these ratios at December 31, 2018 (dollar amounts in millions) Burt $40 $30 $40 $70 Current ratio Debt ratio0.57 Read Requirement 1. Determine whether each transaction improved or hurt the company's current ratio and debt ratio a. Purchased equipment on account, S6. (Review each transaction independently. Round calculations to two decimal places.) Current ratio Debt ratio current ratio debt rati More Info a. Purchased equipment on account, $6 b. Paid long-term debt, $9 c. Collected cash from customers in advance, $1 d. Accrued interest expense, $5 e. Made cash sales, $6 Print Done

Explanation / Answer

Current ratio= Current assets/Current Liaibilies

HIgher theCurrent ratio more better for the company, it shows us that company has enough liquidity to run the daily operations.

Debt ratio= Total Liabilites/Total Assets

Lower the Debt ratio more better for the company, it shows us that company is less dependant on the debt.

Transcation Impact New Current ratio New debt ratio Improved or hurt Remarks 1 Purchased Equipment on account $ 6 This will Increase the Fixed assets and also accounts Payable(Current Liabilites) 40/30+6 $40+6/$70+6 HURT both Current and Debt ratio Current ratio has decreased and New Debt ratio has increased 40/36= 1.11 46/76=0.61 2 Paid Long term debt,$9 This will reduce the cash(Current assets) and also the debt 40-9/30 40-9/70-9 HURT Current ratio and Improved Debt ratio Current ratio has decreased and New Debt ratio has decreased 31/30=1.03 31/61=0.51 3 Collected cash in advance $1 This will Increase the cash(Current assets) and also the advances from customers(Current Liabilites) 40+1/30+1 40+1/70+1 HURT both Current and Debt ratio Current ratio has decreased and New Debt ratio has increased 41/31=1.32 41/71=0.58 4 Accrued Interest Expense $5 This will Increase the Current Liabilites and decrease the income which will have impact on stockholders equity 40/30+5 40+5/70 HURT both Current and Debt ratio Current ratio has decreased and New Debt ratio has increased 40/35=1.14 45/70=0.64 5 Made Cash Sales $6 This will Increase the cash(Current assets) and increase the income which will have impact on stockholders equity 40+6/30 40/70+6 Improved Current ratio and Improved Debt ratio Current ratio has Increased and New Debt ratio has Decreased 46/30=1.53 40/76=0.53

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.