Question

Gil Corporation has current assets of $90,000 and current liabilities of $180,000. Required: Determine Gil Corporations initial current ratio and then compute the effect of each of the following independent transactions on Gil's current ratio. (Round your answers to 2 decimal places. If a transaction does not affect Gil's current ratio, select "is not affected" from the dropdown list and enter "O" or leave the cell blank in the numeric entry field.) 1. What is Gil's initial current ratio? 2. What is the effect on Gil's current ratio if a refinancing on a $30,000 long-term mortgage with a short-term note occurs? 3. What is the effect on Gil's current ratio if a purchase of $50,000 of merchandise inventory with short-term accounts payable occurs? 4. What is the effect on Gil's current ratio if a payment of $20,000 of short-term accounts payable occurs? 5. What is the effect on Gil's current ratio if a collection of $10,000 of short-term accounts receivable occurs? 1 Gil's initial current ratio is 2 Current ratio 3 Current ratio 4 Current ratio 5 Current ratio

Answer 1

Answer:

1	Gil's Current Ratio is			0.5
2	Current Ratio	0.43	to	1
3	Current Ratio	0.61	to	1
4	Current Ratio	0.56	to	1
5	Current Ratio	0.56	to	1

Explanation:

Given,

Current Assets = $90,000

Current Liabilities = $180,000

Current Ratio = Current Assets ÷ Current Liabilities

1)

Current Ratio = $90,000 ÷ $180,000 = 0.5

2)

If long term loan is refinanced by short term notes, Current Liabilities increases by $30,000

:. Current Ratio = $90,000 ÷ $210,000 = 0.4285 = 0.43 (approx)

3)

If $50,000 worth merchandise inventory is purchased by short term accounts payable, both current Assets and current liabilities will increase by the same amount.

Current Ratio = $140,000 ÷ $230,000 = 0.6087 = 0.61 (approx)

4)

If a repayment of $20,000 short term accounts payable occurs, Current Liabilities will be $160,000

Current Ratio = $90,000÷$160,000 = 0.5625 = 0.56 (approx)

5)

If short term accounts receivable of $10,000 is collected, Current Liabilities will become $100,000

Current Ratio = $100,000 ÷ $180,000 = 0.5555 = 0.56 (approx)