Question
Determine the direction [ increase, decrease, or no effect ] of effect of each of the following independent transaction on the current ratio. Please do
Determine the direction [ increase, decrease, or no effect ] of effect of each of the following independent transaction on the current ratio. Please do not reproduce the question in your answer sheet. Instead, just answer as follows: (1) increase (2) decrease (3) no effect, and so on.
Assume that the current ratio is LESS than 1.0 prior to each transaction. [2 marks each (no partial mark here, obviously)]
Current ratio = current assets / current liabilities
(1) Paid accrued interest in the amount of $52,000.
(2) Borrowed $550,000 from Commerce Bank; signed a 9-month, 6 percent interest-bearing note.
(3) Sold merchandise for $6,000 cash. The cost for this merchandise was $5,500.
(4) Purchased merchandise for resale at a cost of $75,800 on credit.
(5) Paid the invoice for merchandise purchased on credit.
(6) Reclassified a long-term debt in the amount of $100,000 to a current liability.
(7) Recorded income tax expense for the year in the amount of $125,000.
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