Assume a ﬁrm's current ratio equals 3.1. Which of the following actions would increase it?
A) Discarding and writing off spoiled inventory.
B) Receiving a full cash payment on an account receivable.
C) Paying off a short-term bank loan with the proceeds from new long-term debt.
D) Purchasing new ﬁxed assets using the proceeds from a new stock issue.
E) Buying inventory on credit, thereby increasing accounts payable.

Question

Quizplus · Accepted Answer

Paying off a short-term bank loan with long-term debt increases current assets relative to current liabilities, thus increasing the current ratio.

Assume a ﬁRm's Current Ratio Equals 3