If a company purchased a $60,000 piece of equipment by paying $30,000 and having the rest financed with a short-term note from the bank. Immediately after this transaction what is the expected impact on the components of the current ratio?

Question

Quizplus · Accepted Answer

The current asset component of the current ratio will decrease by the amount of cash used to purchase the equipment ($30,000) while the current liability component will increase by the same amount with the addition of the short-term note from the bank. Therefore, both components decrease and increase by the same amount, leading to no overall impact on the current ratio.

If a Company Purchased a $60,000 Piece of Equipment by Paying