Bellwood Company’s condensed and adapted balance sheet at December 31, 2018, follows:

                                                                          (In millions)
Total current assets ....................................................... $15.2
Property, plant, equipment, and other assets ....... 15.9
$31.1
Total current liabilities ................................................... $ 9.4
Total long-term liabilities ................................................ 5.9
Total stockholders’ equity ............................................ 15.8
                                                                             $31.1

Assume that during the first quarter of the following year, 2019, Bellwood completed the following transactions:

a. Earned revenue, $2.6 million, on account.

b. Borrowed $5.0 million in long-term debt.

c. Paid half of the current liabilities.

d. Paid selling expense of $1.0 million.

e. Accrued general expense of $0.7 million. Credit General Expense Payable, a current liability.

f. Purchased equipment for $4.4 million, paying cash of $1.7 million, and signing a long-term note payable for $2.7 million.

g. Recorded depreciation expense of $0.9 million.

Requirements

1. Calculate Bellwood’s current ratio and debt ratio at December 31, 2018. Round to two decimal places.

2. Consider each transaction separately. Calculate Bellwood’s current ratio and debt ratio after each transaction during 2019—that is, seven times. Round ratios to two decimal places.

3. Complete the following statements with either “increase” or “decrease”:

a. Revenues usually _________ the current ratio.

b. Revenues usually _________ the debt ratio.

c. Expenses usually _________ the current ratio. (Note: Depreciation is an exception to this rule.)

d. Expenses usually _________ the debt ratio.

e. If a company’s current ratio is greater than 1.0, as it is for Bellwood, paying off a current liability will always _________ the current ratio.

f. Borrowing money on long-term debt will always _________ the current ratio and the debt ratio.