Answered: The conversion of the company’s…

The conversion of the company’s short-term debt into a long-term note payable would decrease both working capital and the current ratio.

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter6: Accounting Quality

Section: Chapter Questions

Problem 4QE

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Concept explainers

Swaps

A swap is a derivative contract in which two parties are agreed to exchange their cash flows from two different financial instruments for a defined period. In swap contracts, cash flows from one financial instrument are fixed and cash flow from other financial instruments is variable based on the interest rate, exchange rate, and commodity price. Swap contracts are transacted in an over-the-counter system. Swap contracts are utilized to hedge risk and mitigate loss.

Question

State whether the following statements are true of false.

Statement 1: The conversion of the company’s short-term
debt into a long-term note payable would decrease both working
capital and the current ratio.

Statement 2:A user of financial statements who is a short-term
creditor is interested in the borrower’s ability to pay interest
regularly.
STATEMENT 1 STATEMENT 2
a. True True
b. True False
c. False True
d. False False

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