Burt Wilson Company reported these ratios at December 31, 2016 (dollar amounts i

Question

Burt Wilson Company reported these ratios at December 31, 2016 (dollar amounts in millions) Current ratio Burt Wilson Company completed these transactions during 2017 $20 $10 $30 $60 2.00 Debt ratio0.50 (Click the icon to view the transactions.) Requirement 1. Determine whether each transaction improved or hurt Wilson's current ratio and debt ratio. (Review each transaction independently. Round calculations to two decimal places.) a. Let's begin by calculating the current ratio and debt ratio to include the purchase of the equipment. Current ratio - Debt ratio 6 More Info current ratio debt ratic b. Now calculate the current ratio and debt ratio to include the payment of long-term debt. Current ratio Debt ratio - a. Purchased equipment on account, $6 b. Paid long-term debt, $5 c. Collected cash from customers in advance, $8 d. Accrued interest expense, $6 e. Made cash sales, $12 current ratio debt ratio c. Next, calculate the current ratio and debt ratio to include the receipt of customer advance:s Current ratio Debt ratio - current ratio debt ratio Print Done d. Now calculate the current ratio and debt ratio to include the accrual of interest expense Current ratio Debt ratio - current ratio debt ratio e. Finally, calculate the current ratio and debt ratio to include the cash sales Current ratio - Debt ratio - current ratio debt ratic

Explanation / Answer

At December 31, 2016:

Current Assets = $20
Current Liabilities = $10
Total Debt = $30
Total Assets = $60

Answer a.

Purchased Equipment on account, $6:

Current Assets = $20
Current Liabilities = $10 + $6 = $16
Total Debt = $30 + $6 = $36
Total Assets = $60 + $6 = $66

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $20 / $16
Current Ratio = 1.25

Debt Ratio = Total Debt / Total Assets
Debt Ratio = $36 / $66
Debt Ratio = 0.55

Current Ratio = Hurt
Debt Ratio = Hurt

Answer b.

Paid long-term debt, $5:

Current Assets = $20 - $5 = $15
Current Liabilities = $16
Total Debt = $36 - $5 = $31
Total Assets = $66 - $5 = $61

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $15 / $16
Current Ratio = 0.94

Debt Ratio = Total Debt / Total Assets
Debt Ratio = $31 / $61
Debt Ratio = 0.51

Current Ratio = Hurt
Debt Ratio = Improved

Answer c.

Collected cash from customers in advance, $8:

Current Assets = $15 + $8 = $23
Current Liabilities = $16 + $8 = $24
Total Debt = $31 + $8 = $39
Total Assets = $61 + $8 = $69

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $23 / $24
Current Ratio = 0.96

Debt Ratio = Total Debt / Total Assets
Debt Ratio = $39 / $69
Debt Ratio = 0.57

Current Ratio = Improved
Debt Ratio = Hurt

Answer d.

Accrued interest expense, $6:

Current Assets = $23
Current Liabilities = $24 + $6 = $30
Total Debt = $39 + $6 = $45
Total Assets = $69

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $23 / $30
Current Ratio = 0.77

Debt Ratio = Total Debt / Total Assets
Debt Ratio = $45 / $69
Debt Ratio = 0.65

Current Ratio = Hurt
Debt Ratio = Hurt

Answer e.

Made cash sales, 12:

Current Assets = $23 + $12 = $35
Current Liabilities = $30
Total Debt = $45
Total Assets = $69 + $12 = $81

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $35 / $30
Current Ratio = 1.17

Debt Ratio = Total Debt / Total Assets
Debt Ratio = $45 / $81
Debt Ratio = 0.56

Current Ratio = Improve
Debt Ratio = Improve

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