Analyze and evaluate liquidity and debt-paying ability
Response to the following problem:
This problem demonstrates the effects of transactions on the current ratio and the debt ratio of Cole Company. Cole's condensed and adapted balance sheet at December 31, 2013, follows:
(In millions)
Total current assets $ 15.4
Properties, plant, equipment, and other assets 15.8
$31.2
Total current liabilities $ 9.4
Total long-term liabilities 5.5
Total shareholders' equity 16.3
$31.2
Assume that during the first quarter of the following year, 2014, Cole completed the following transactions:
a. Earned revenue of $2.4 million, on account.
b. Borrowed $3.0 million on long-term debt.
c. Paid half of the current liabilities.
d. Paid selling expense of $0.6 million.
e. Accrued general expense of $0.3 million. Credit General Expense Payable, a current liability.
f. Purchased equipment for $4.9 million, paying cash of $2.0 million and signing a longterm note payable for $2.9 million.
g. Recorded depreciation expense of $0.9 million.