If the company purchased a $50,000 piece of equipment by paying $20,000 and having the rest financed with a short-term note from the bank,then immediately after this transaction what is the expected impact on the current ratio?

Question

Quizplus · Accepted Answer

The purchase of the equipment resulted in a decrease in current assets (since $20,000 was paid out) and an increase in current liabilities (since the rest was financed with a short-term note), both by the same amount. Therefore, the current ratio (current assets divided by current liabilities) decreases.

If the Company Purchased a $50,000 Piece of Equipment by Paying