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Dungy Training Company has a current ratio of 0.80 to 1, based on current assets of $6

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Dungy Training Company has a current ratio of 0.80 to 1, based on current assets of $6 million and current liabilities of $7.5 million. How, if at all, will an $800,000 cash purchase of inventory affect the current ratio? How, if at all, will an $800,000 purchase of inventory on account affect the current ratio?
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Current ratio before purchase of inventory 6000000 7500000 080 ...View the full answer


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Related Book For  answer-question
Financial Accounting

Financial Accounting

ISBN: 9780078110825

2nd Edition

Authors: J. David Spiceland, Wayne Thomas, Don Herrmann

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The current ratio is a financial ratio that measures a company\'s ability to pay its short-term obligations with its short-term assets. It is calculated by dividing a company\'s current assets by its current liabilities. The formula for calculating the current ratio is: Current Ratio = Current Assets / Current Liabilities Current assets are assets that can be converted to cash within one year, while current liabilities are debts that are due within one year. A current ratio of 1:1 or greater is generally considered good, as it indicates that a company has enough current assets to cover its current liabilities. A current ratio of less than 1:1 may suggest that a company may have difficulty meeting its short-term obligations. It\'s important to note that the current ratio is just one of many financial ratios that can be used to assess a company\'s financial health. It should be used in conjunction with other financial ratios and qualitative factors to make informed decisions about investing or lending to a company.

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