Talia59
Aug 6, 2012, 02:18 PM
June Smith, a process engineer, has sold her 15-year patent for a new etching process to Silica
Labs, Inc. In return, she has received $500,000 in cash and, based on its value on the sale
date, $200,000 in common stock in Silica Labs. The stock is forecasted to double in market
value over the next two months.
Assuming that Silica Labs holds some long-term debt, which of the following describes the
effect of the transaction on Silica Labs?
A. Current ratio will decrease and total debt to equity ratio will increase
B. Current ratio will increase and total debt to equity ratio will increase
C. Current ratio will decrease and total debt to equity ratio will decrease
D. Current ratio will increase and total debt to equity ratio will decrease
***My answer: I am kind of lost on this one. I think I would narrow my choices down to the selections that have the current ratio increasing because I believe Silica labs is gaining an asset that costs 700k and only really paying 500k of assets so the current ratio would increase because current ratio = current assets/current liabilities.
Next I would choose the selection that would show the debt to equity ratio increasing. I think I am so far off on this and need help please!
Labs, Inc. In return, she has received $500,000 in cash and, based on its value on the sale
date, $200,000 in common stock in Silica Labs. The stock is forecasted to double in market
value over the next two months.
Assuming that Silica Labs holds some long-term debt, which of the following describes the
effect of the transaction on Silica Labs?
A. Current ratio will decrease and total debt to equity ratio will increase
B. Current ratio will increase and total debt to equity ratio will increase
C. Current ratio will decrease and total debt to equity ratio will decrease
D. Current ratio will increase and total debt to equity ratio will decrease
***My answer: I am kind of lost on this one. I think I would narrow my choices down to the selections that have the current ratio increasing because I believe Silica labs is gaining an asset that costs 700k and only really paying 500k of assets so the current ratio would increase because current ratio = current assets/current liabilities.
Next I would choose the selection that would show the debt to equity ratio increasing. I think I am so far off on this and need help please!