Indicate (by letter) whether the actions listed in the table will immediately in
ID: 2369366 • Letter: I
Question
Indicate (by letter) whether the actions listed in the table will immediately increase, decrease, or have no effect on the ratios in the table. Assume each ratio is less than 1.0 before the action is taken.
current ratio acid test ratio debt to equity ratio
1. Issuance of long term bonds
2. Issuance of short term notes
3. Payment of accounts payable
4. Purchase of inventory on account
5. Purchase of inventory for cash
6. Purchase of equipment with a
4 year note
7. Retirement of bonds
8. Sale of common stock
9. Write-off of obsolete inventory
10. Purchase of short term note
for cash
11. Decision to refinance on a long-
term basis some currently
maturing debt
Explanation / Answer
Lets C -current ratio
A- acid test ratio
& D - debt to equity ratio
1. Issuance of long term bonds - Inc D, NC A&D
2. Issuance of short term notes - Dec C, NC A&D
3. Payment of accounts payable - Inc C, NC A&D
4. Purchase of inventory on account - Inc C, NC A&D
5. Purchase of inventory for cash - Inc C, NC A&D
6. Purchase of equipment with a 4 year note - Inc D, NC A&C
7. Retirement of bonds - Dec D, NC A&C
8. Sale of common stock - No effect A,C,D
9. Write-off of obsolete inventory - No effect A, C, D
10. Purchase of short term note for cash - Dec C, NC A&C
11. Decision to refinance on a long-term basis some currently maturing debt - Inc D, NC A&C