Homework Answers
A good current ratio is between 1.50 to 3.00. A debt ratio is considered good when it is 0.50 and above.
Cuurent ratio = Current Assets / Current Liabilities
Debt ratio = Total liabilities / Total Assets
| a. Purchased euipment on account $7 (increase in fixed assets and increase in current liabilites) | ||||
| Current ratio ($30 / $27) | 1.11 | Debt Ratio ($47 /$77) | 0.61 | |
| Hurt current ratio | Improved Debt ratio | |||
| b. Paid Long Term debt $9 (Decrease in current assets and decrease in long term liabilities) | ||||
| Current ratio ($21 / $20) | 1.05 | Debt Ratio ($31/$61) | 0.51 | |
| Hurt current ratio | Hurt Debt ratio | |||
| c. Collected cash from customers in advance $5 (increase in current assets and increase in cuurent liabilities) | ||||
| Current ratio ($35 / $25) | 1.40 | Debt Ratio ($45 / $75) | 0.60 | |
| Hurt current ratio | Improved Debt ratio | |||
| d. Accrued interest expense $2 (increase in current liabilities) | ||||
| Current ratio ($30 / $22) | 1.36 | Debt Ratio ($42 / $70) | 0.60 | |
| Hurt current ratio | Improved Debt ratio | |||
| e. Made cash sales $10 (Increase in current assets) | ||||
| Current ratio ($40 / $20) | 2.00 | Debt Ratio ($40 / $80) | 0.50 | |
| Improved current ratio | Hurt Debt ratio |
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