How will a company's current ratio be affected by the purchase of equipment for cash?
A)The current ratio will increase because current assets increase.
B)The current ratio will decrease because current liabilities increase.
C)The current ratio will decrease because current assets decrease.
D)The current ratio will remain unchanged.

Question

Quizplus · Accepted Answer

The transaction will increase Equipment,a noncurrent asset,and decrease Cash,a current asset.The current ratio is computed by dividing current assets by current liabilities.Since the numerator will decrease,the current ratio will decrease.

How Will a Company's Current Ratio Be Affected by the Purchase