Analyzing the Impact of Selected Transactions on the Current Ratio
The Bombay Company, Inc. marketed a line of proprietary home furnishings that includes large furniture, occasional furniture, wall decor, and decorative accessories that is timeless, classic, and traditional in its styling through a network of retail locations throughout the United States and Canada, through its direct-to-customer operations, and international licensing arrangements. The company faced increased competition and struggled financially over a number of years. It was forced to file for bankruptcy and was liquidated in 2008.
In its last financial statement prior to bankruptcy, Bombay reported current assets of $161,604,000 and current liabilities of $113,909,000. Determine the impact of the following transactions on the current ratio for Bombay: (1) sold long-term assets that represented excess capacity, (2) accrued severance pay and fringes for employees who will be terminated, (3) wrote down the carrying value of certain inventory items that were deemed to be obsolete, and (4) acquired new inventory; supplier was not willing to provide normal credit terms, so an 18-month interest-bearing note was signed.
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