Benson Company received cash of $5,000,000 by issuing 20-year bonds payable.As a result of this transaction,the company's current ratio will:
A)Remain the same.
B)Increase.
C)Decrease.
D)Cannot be determined.

Question

Quizplus · Accepted Answer

The receipt of cash from the issuance of bonds is an asset source transaction;the asset account Cash increases and the liability account Bonds Payable also increases.The current ratio is calculated by dividing current assets by current liabilities.This transaction impacts the numerator but not the denominator.As a result,this transaction causes the current ratio to increase.

Benson Company Received Cash of $5,000,000 by Issuing 20-Year Bonds