Question

A firm has a current ratio greater than 1.0. During the course of the year the...

A firm has a current ratio greater than 1.0. During the course of the year the firm sells $60 million of accounts receivable with limited recourse. If it had not sold the receivables it would have taken out a short-term loan. The effect of selling the receivables is:

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

The current ratio of the firm is greater than 1.0. This means that the firm has more current assets than current liabilities. In case the firm sells account receivables during the year, which is classified as current assets, the current ratio of the firm will remain same as the cash will increase by a proportional amount. In case the firm has not sold the account receivables and instead raised a short term loan, the effect on current ratio would be similar. With increase in short term loan, which is classified as current liabilities, the current ratio of the firm would decrease.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
12. An acid-test or quick ratio of 1.0 is considered less risky than a ratio of...
12. An acid-test or quick ratio of 1.0 is considered less risky than a ratio of 0.50. TRUE FALSE 13. Amber’s Clothing Store reported the following at June 30, 2018: Cash $ 79,000 Accounts Receivable, net: June 30, 2018 June 30, 2017 45,000 53,000 Accounts Payable 55,000 Cost of Goods Sold 288,250 Merchandise Inventory June 30, 2018 June 30, 2017 70,000 90,000 Net Credit Sales Revenue 480,000 Long-Term Assets 220,000 Long-Term Liabilities 140,000 Other Current Assets 150,000 Other Current Liabilities...
A firm starts its year with positive net working capital. During the year, the firm acquires...
A firm starts its year with positive net working capital. During the year, the firm acquires more short-term debt than it does short-term assets. This means that Multiple Choice the ending net working capital might be positive, negative, or equal to zero. accounts payable increased and inventory decreased during the year. the beginning current assets were less than the beginning current liabilities. the ending net working capital will be negative. both accounts receivable and inventory decreased during the year.
The Jamesway Printing Corporation has current assets of $3.5 million. Of this total, $1.2 million is...
The Jamesway Printing Corporation has current assets of $3.5 million. Of this total, $1.2 million is inventory, $0.6 million is cash, $1.0 million is accounts receivable, and the balance is marketable securities. Jamesway has $1.6 million in current liabilities. Round your answers to two decimal places. What are the current and the quick ratios for Jamesway? Current ratio:  x Quick ratio:  x If Jamesway takes $0.2 million in cash and pays off $0.2 million of current liabilities, what happens to its current...
The granit Company has a target current ratio of 3 but has experinced some difficulties financing...
The granit Company has a target current ratio of 3 but has experinced some difficulties financing its expanding sales in the past few months. The firm has a current ratio of 5 with current assets of $5 million. If Granit expands its receivables and inventories using its short term line of credit, how much additional short term funding can it borrow before its target current ratio is reached?
The Allen Marble Company has a target current ratio of 2.0 but has experienced some difficulties...
The Allen Marble Company has a target current ratio of 2.0 but has experienced some difficulties financing its expanding sales in the past few months. At​ present, the firm has current assets of ​$2.6 million and a current ratio of 2.6. If Allen expands its receivables and inventories using its​ short-term line of​ credit, how much additional​ short-term funding can it borrow before its current ratio standard is​ reached?
Indicate the effect of each of the following transactions on (1) the current ratio, (2) working...
Indicate the effect of each of the following transactions on (1) the current ratio, (2) working capital, (3) stockholders’ equity, (4) book value per share of common stock, and (5) retained earnings. Assume that the current ratio is greater than 1:1. (Indicate the effect of each transactions by selecting "+" for increase, "–" for decrease, and "NC" for no change.) Collected account receivable. Wrote off account receivable. Converted a short-term note payable to a long-term note payable. Purchased inventory on...
Long-term debt ratio 0.1 Times interest earned 8.0 Current ratio 1.4 Quick ratio 1.0 Cash ratio...
Long-term debt ratio 0.1 Times interest earned 8.0 Current ratio 1.4 Quick ratio 1.0 Cash ratio 0.4 Inventory turnover 4.0 Average collection period 73 days Use the above information from the tables to work out the following missing entries, and then calculate the company’s return on equity. Note: Turnover and the average collection period are calculated using start-of-year, not average, values. (Enter your answers in millions. Round intermediate calculations and final answers to 2 decimal places.) Long-term debt ratio 0.1...
Working Capital and Short-Term Firm Liquidity Ratios Favor Company has a current ratio of 2.08 (2.08:1)...
Working Capital and Short-Term Firm Liquidity Ratios Favor Company has a current ratio of 2.08 (2.08:1) on December 31. On that date its current assets are as follows: Cash and cash equivalents $28,000 Short-term investments 87,000 Accounts receivable (net) 125,000 Inventory 258,500 Prepaid expenses 9,980 Current assets $508,480 Favor Company's current liabilities at the beginning of the year were $192,000 and during the year its operating activities provided a cash flow of $38,830. a. What are the firm's current liabilities...
A corporation began the month with $200,000 of current assets and the following ratios: Current ratio...
A corporation began the month with $200,000 of current assets and the following ratios: Current ratio 2.5 to 1 Acid-test ratio 1.25 to 1 Required: Review the following transactions and indicate the effect they have on the current ratio by placing an X in the appropriate column. Treat each transaction independently. Do not recalculate the current ratio. Increase Decrease No Effect a. Bought $20,000 of merchandise on account; the company uses a perpetual inventory system. b. Sold for $10,000 cash...
Denna Company’s working capital accounts at the beginning of the year follow: Cash $ 66,000 Marketable...
Denna Company’s working capital accounts at the beginning of the year follow: Cash $ 66,000 Marketable securities $ 26,800 Accounts receivable, net $ 340,400 Inventory $ 449,600 Prepaid expenses $ 7,200 Accounts payable $ 192,800 Notes due within one year $ 92,000 Accrued liabilities $ 56,400 During the year, Denna Company completed the following transactions: Paid a cash dividend previously declared, $26,000. Issued additional shares of common stock for cash, $192,000. Sold inventory costing $66,800 for $96,000, on account. Wrote...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT