Question

BSO, Inc, has current assets of $1,000,000 and current liabilities of $500,000, resulting in a current ratio of 2.0.Calculate the current ratio and determine whether it will increase, decrease, or remain the same.a. Purchased $20,000 of supplies on credit.b. Paid Accounts Payable in the amount of $50,000.c. Recorded $100,000 of cash contributed by a stockholder.d. Borrowed $250,000 from a local bank, to be repaid in 90 days.

Answer 1

Answer:

1.96 Decreased; 2.06 Increased; 2.28 Increased; 1.83 Decreased

Explanation:

Let's present it in a table

     Current Assets  /   Current Liabilities   =    Current Ratio

Beg.   1,000,000       /            500,000            =     2

In A. Current Assets increased and Current Liabilities Increased.

a.       1,020,000       /             520,000            =   1.96 Decreased

In B. Current Assets decreased and Current Liabilities decreased.

b.          970,000       /              470,000           =    2.06 Increased

In C. Current Assets increased and Current Liabilities remained the same.

c.       1,070,000        /              470,000           =    2.28 Increased

In D. Current Assets increased and Current Liabilities Increased.

d.        1,3720,000     /               720,000          =   1.83 Decreased

Current ratio moves when a current asset or current liability moves.