Fort Saskatchewan Ltd.is choosing between paying out a stock dividend or a cash dividend.What will be the effect on their current ratio of the two choices?

$\begin{array}{ll}&\text { Stock } & \text { Cash } \
&\text { Dividend } & \text { Dividend }\\hline
A.&\text { Unchanged } & \text { Unchanged } \
B.&\text { Unchanged } & \text { Decreased } \
C.&\text { Decreased } & \text { Unchanged } \
D.&\text { Decreased } & \text { Decreased }
\end{array}$

Question

Fort Saskatchewan Ltd.is choosing between paying out a stock dividend or a cash dividend.What will be the effect on their current ratio of the two choices?

$\begin{array}{ll}&\text { Stock } & \text { Cash } \
&\text { Dividend } & \text { Dividend }\\hline 
A.&\text { Unchanged } & \text { Unchanged } \
B.&\text { Unchanged } & \text { Decreased } \
C.&\text { Decreased } & \text { Unchanged } \
D.&\text { Decreased } & \text { Decreased }
\end{array}$

Quizplus · Accepted Answer

A stock dividend does not affect the current ratio because it does not involve the movement of cash or change in current assets or liabilities. A cash dividend decreases the current ratio by reducing current assets (cash) without affecting current liabilities.

Fort Saskatchewan Ltd A)Option a B)Option B C)Option C D)Option D

Fort Saskatchewan Ltd A)Option a
B)Option B
C)Option C
D)Option D