Question

Which of the following would not improve the current ratio? a. Borrow short term to finance...

Which of the following would not improve the current ratio?

a.

Borrow short term to finance additional fixed assets.

b.

Issue long-term debt to buy inventory.

c.

Sell common stock to reduce current liabilities.

d.

Sell fixed assets to reduce accounts payable.

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Homework Answers

Answer #1

Current ratio = Current Assets/ Current Liabilities.

Current Ratio will improve if Current Assets Increase or Current Liabilities Decrease.

a. Borrow short term to finance additional fixed assets will result increase in Current Liabilities and Decrease in Current Ratio.

b.Issue long-term debt to buy inventory will result Increase in Current Assets and Increase in Current Ratio.

c.Sell common stock to reduce current liabilities will result decrease in Current Liabilities and Increase in Current Ratio.

d.Sell fixed assets to reduce accounts payable will result decrease in Current Liabilities and Increase in Current Ratio.

Answer A

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