Question

Good buys has current assets of $2,500,000 and current liabilities of $1,000,000. if they issue $50,000 of new stock, what will their new current ratio be?

Answer 1

Current ratio is equal to current assets divided by current liabilities. When Good Buys issues $50,000 of new stock, its cash increases by 50,000 and its Equity increases by the same amount. Liabilities, long term or current, are unaffected. Its new current ratio is 2,550,000 / 1,000,000 = 2.55