Many companies have to monitor some of their financial statement ratios, such as the current ratio, due to debt covenants. Selected transactions are provided below for a company that uses a perpetual inventory system; sells its merchandise at a selling price that exceeds cost; and had a current ratio of 1.85 to 1 before the event occurred.
Required:
In the above table, indicate whether each transaction would increase (+), decrease (−), or not affect (0)the company's working capital and the current ratio.

Question

Many companies have to monitor some of their financial statement ratios, such as the current ratio, due to debt covenants. Selected transactions are provided below for a company that uses a perpetual inventory system; sells its merchandise at a selling price that exceeds cost; and had a current ratio of 1.85 to 1 before the event occurred.
  Required:
In the above table, indicate whether each transaction would increase (+), decrease (−), or not affect (0)the company's working capital and the current ratio.

Quizplus · Accepted Answer

The Answer of Many companies have to monitor some of their financial statement ratios, such as the current ratio, due to debt covenants. Selected transactions are provided below for a company that uses a perpetual inventory system; sells its merchandise at a selling price that exceeds cost; and had a current ratio of 1.85 to 1 before the event occurred.
  Required:
In the above table, indicate whether each transaction would increase (+), decrease (−), or not affect (0)the company's working capital and the current ratio.

Many Companies Have to Monitor Some of Their Financial Statement