Amram Company's current ratio is 1.9.Considered alone, which of the following actions would reduce the company's current ratio?
A) Use cash to reduce accounts payable.
B) Borrow using short-term notes payable and use the proceeds to reduce accruals.
C) Borrow using short-term notes payable and use the proceeds to reduce long-term debt.
D) Use cash to reduce accruals.
E) Use cash to reduce short-term notes payable.

Question

Quizplus · Accepted Answer

Borrowing using short-term notes payable (increasing current liabilities) and using the proceeds to reduce long-term debt (not affecting current assets) would reduce the current ratio by increasing current liabilities without any increase in current assets.

Amram Company's Current Ratio Is 1