Many Companies Have to Monitor Closely Certain Ratios,such as the Current

question 39

Essay

Many companies have to monitor closely certain 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 and a quick ratio of 1.19 before the event occurred. $\begin{array}{|l|l|l|}\hline & \text { Impact on } & \text { Impact on } \\\hline & \text { Current Ratio } & \text { Ouick Ratio } \\\hline \text { Description of Transaction } & (+) \text { or }(-) \text { or }(\mathbf{0}) & (+) \text { or }(-) \text { or }(0) \\\hline \text { 1. Collected accounts receivable } & & \\\hline \text { 2. Issued common stock for cash } & & \\\hline \text { 4. Paid previously declared cash dividend } & & \\\hline \text { 5. Paid the balance on an account payable } & & \\\hline \text { 6. Purchased a building by issuing a long. } & & \\\hline \text { term note } & & \\\hline \text { 7. Purchased inventory on account } & & \\\hline \text { 8. Purchased current marketable securities for } & & \\\text { cash } & & \\\hline \text { 9. Sold merchandise for cash } & & \\\hline \text { 10. Sold merchandise on account } & & \\\hline\end{array}$ Required:
In the above table,indicate whether each transaction would increase (+),decrease (-),or not affect (0)the company's current ratio and quick ratio.

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