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

                                                                           (In millions)
Total current assets ........................................................... $15.9
Property, plant, equipment, and other assets ........... 16.2
$32.1
Total current liabilities ...................................................... $ 9.6
Total long-term liabilities ................................................... 5.5
Total shareholders’ equity ................................................ 17.0
                                                                                $32.1

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

a. Earned revenue of $2.8 million, on account.

b. Borrowed $7.0 million in long-term debt.

c. Paid half of the current liabilities.

d. Paid selling expense of $0.6 million.

e. Accrued general expense of $0.8 million. Credit General Expense Payable, a current liability.

f. Purchased equipment for $4.6 million, paying cash of $1.9 million and signing a long-term note payable for $2.7 million.

g. Recorded depreciation expense of $0.4 million.

Requirements

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

2. Consider each transaction separately. Calculate McClain’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 for McClain, 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.