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    Dog1937's Avatar
    Dog1937 Posts: 14, Reputation: 1
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    #1

    Nov 3, 2013, 12:38 PM
    Current Ratio and Total Debt to Equity
    Having some difficulty with the following...


    Juan Foods pays off a long-term debt in full. Which one of the following statements describes the effect of the sale on Juan Foods?

    A.Current ratio increases; total debt to equity ratio decreases
    B.Current ratio decreases; total debt to equity ratio decreases
    C.Current ratio decreases; total debt to equity ratio increases
    D.Current ratio increases; total debt to equity ratio increases

    Any help would be greatly appreciated
    rehmanvohra's Avatar
    rehmanvohra Posts: 739, Reputation: 27
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    #2

    Nov 3, 2013, 11:40 PM
    Analyse the transaction for its effect on Balance Sheet Equation.
    Payment of long term debts will reduce current assets and reduce long term liability.
    The obvious answer is B: Current ratio decreases; total debt to equity ratio decreases
    Dog1937's Avatar
    Dog1937 Posts: 14, Reputation: 1
    New Member
    		  
    #3

    Nov 4, 2013, 07:17 AM
    Thank you for your prompt reply. I really appreciate it!
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