Other things being equal, most managers would prefer to report liabilities as noncurrent rather than current. The logic behind this preference is that the long-term classification permits the company to report:
A) Higher working capital and a higher inventory turnover.
B) Lower working capital and a higher current ratio.
C) Higher working capital and a higher current ratio.
D) Higher working capital and a lower debt to equity ratio.

Question

Quizplus · Accepted Answer

Reporting liabilities as noncurrent increases the company's working capital and current ratio, as the liabilities are not due for payment in the short term. This gives the impression that the company has better liquidity and financial stability, which is preferred by most managers. Option A is incorrect as reporting liabilities as noncurrent does not affect inventory turnover. Option B is incorrect as it suggests a lower current ratio, which is unfavourable. Option D is incorrect as reporting liabilities as noncurrent would not affect the debt to equity ratio.

Other Things Being Equal, Most Managers Would Prefer to Report