Oats,Inc. ,has $14,000 in Cash,$37,000 in Accounts Receivable,$2,500 in Supplies,$52,000 in Accounts Payable and $12,400 in Wages Payable.If Oats uses Cash to pay off $8,000 of the Wages Payable,which of the following statements is correct?

Question

Quizplus · Accepted Answer

Current ratio = Current assets ÷ Current liabilities
Before the transaction:
($14,000 + $37,000 + $2,500)÷ ($52,000 + $12,400)= $53,500 ÷ $64,400 = 0.83
After the transaction:
($6,000 + $37,000 + $2,500)÷ ($52,000 + $4,400)= 0.81
The current ratio decreased.A higher ratio means better ability to pay;a lower ratio means lesser ability to pay.In this case,the company would look less (rather than more)favorable to creditors.

Oats,Inc ,Has $14,000 in Cash,$37,000 in Accounts Receivable,$2,500 in Supplies,$52,000