Marvel Inc.has $180,000 in current assets and $150,000 in current liabilities.When the company pays $35,000 owed to employees (salaries payable), what effect does this have on their current ratio?

Question

Quizplus · Accepted Answer

Paying off $35,000 in salaries payable decreases both current assets and current liabilities by the same amount, which increases the current ratio because the decrease in liabilities has a proportionally larger impact on the ratio than the decrease in assets.