Vince Corporation has current assets of $300,000 and current liabilities of $175,000.
Required:
Compute the effect of each of the following transactions on Vince's current ratio:
a.Refinanced a $50,000 long-term mortgage with a short-term note.
b.Purchasing $80,000 of merchandise inventory with short-term accounts payable.
c.Paying $30,000 of short-term accounts payable.
d.Collecting $40,000 of short-term accounts receivable.

a.The refinancing of a $50,000 long-term mortgage with a short-term note would increase Vince's current liabilities,decreasing the current ratio to 1.33 (= $300,000 ÷ $225,000)from the current ratio of 1.71 prior to this transaction.
b.Purchasing $80,000 of inventory with a short-term account payable would increase Vince's current assets to $380,000,and increase the current liabilities to $255,000,making the current ratio 1.49 which is a decrease from the current ratio of 1.71 prior to this transaction.
c.Paying $30,000 of short-term accounts payable decreases both the current assets and liabilities by $30,000,making the current ratio 1.86 which is an increase from the current ratio of 1.71 prior to this transaction.
d.Collection of $40,000 of short-term accounts receivable has no effect on Vince's current ratio.