[grccmrn]

Patricia Trident, an ergonomic engineer, has sold her 20-year patent for a chair manufacturing process to Posture Perfect Co. In return, she has received $500,000 in cash and, based on its value on the sale date, $200,000 in common stock in Posture Perfect Co. The stock is forecasted to double in market value over the next two months.

Assuming that Posture Perfect Co. holds some long-term debt, which of the following describes the effect of the transaction on Posture Perfect Co.

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

***I think the answer is either D because since Patricia's current assets (she received cash and common stock in exchange for her patent) and her liabilities remained unchanged (as for as we know given this information), the Current Ratio must therefore increase. I am not sure about whether the Total Debt to Equity (D/E) ratio will decrease or increase.

Any accounting experts out there who can help?

[paraclete]

This is an assignment question and the way for you to answer your question is to construct a model balance sheet and test the effect of the transactions