Fowler Company has current assets, current liabilities, and long-term liabilities of $19,000, $13,000, and $17,000, respectively.Within these amounts, $3,000 is accounts payable, and $3,500 is accounts receivable.If $3,000 of cash were used to pay off the accounts payable, what effect would this have on the current ratio?
A) The current ratio would increase by approximately 0. 14.
B) The current ratio would decrease by approximately 0. 14.
C) The current ratio would decrease by approximately 0. 07.
D) There would be no change in the current ratio.

Question

Quizplus · Accepted Answer

Current ratio before payment of payables = $19,000/$13,000 = 1.46
Current ratio after payment of payables = ($19,000 - $3,000)/($13,000 - $3,000) = 1.60

Fowler Company Has Current Assets, Current Liabilities, and Long-Term Liabilities