Question

United Parcel Service earns service revenue of $650,000. How does this transaction affect UPS's current and debt ratios

Answer 1

Earning service revenue of $650,000 will increase United Parcel Service's current ratio and can potentially decrease its debt ratio.

Step-by-step explanation:

The transaction of earning service revenue of $650,000 will affect United Parcel Service's current and debt ratios in the following ways:

1. Current ratio: The current ratio is a measure of a company's ability to pay off its short-term liabilities with its short-term assets. Earning service revenue increases the company's current assets, which can include cash, accounts receivable, and other assets. As a result, the current ratio will increase, indicating improved liquidity.
2. Debt ratio: The debt ratio is a measure of the proportion of a company's assets that are financed by debt. Earning service revenue does not directly affect the debt ratio, as it represents the company's revenues and not its debt. However, if the company uses the revenue to pay off debt, the debt ratio could decrease.