BSO, Inc., has current assets of $1,000,000 and current liabilities of $500,000, resulting in a current ratio
Question:
BSO, Inc., has current assets of $1,000,000 and current liabilities of $500,000, resulting in a current ratio of 2.0. For each of the following transactions, determine whether the current ratio will increase, decrease, or remain the same. Consider each item, (a)–(d), independent of the others.
a. Purchased $20,000 of supplies on credit.
b. Paid Accounts Payable in the amount of $50,000.
c. Recorded $100,000 of cash contributed by a stockholder for common stock.
d. Borrowed $250,000 from a local bank, to be repaid in 90 days.
Step by Step Answer:
a Decrease b Increase c Increase d ...View the full answer
Fundamentals Of Financial Accounting
ISBN: 9781265440169
7th Edition
Authors: Fred Phillips, Shana Clor Proell, Robert Libby, Patricia Libby
Related Video
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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