A company has a current ratio of 2 to 1.This ratio will decrease if the company:
A)sells merchandise for more than cost and records the sale using the perpetual inventory method.
B)pays a large account payable which had been a current liability.
C)borrows cash on a six-month note.
D)receives a 5 percent stock dividend on one of its marketable securities.
E)None of these choices are correct.

Question

Quizplus · Accepted Answer

Borrowing cash on a six-month note increases current liabilities without affecting current assets, thus decreasing the current ratio.

A Company Has a Current Ratio of 2 to 1