If Foster Toys has a current ratio of 3.2 and working capital of $4,400,000, which of the following will cause both the current ratio and working capital to decrease?

Question

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Working capital will remain the same in A, C, and D. Only option B will show a decrease in both the current ratio and working capital. Recording unpaid salaries increases accounts payable (current liability), which is the denominator of the current ratio computation. This will result in a decrease in the current ratio. Similarly, a larger amount of current liabilities will be subtracted from current assets to result in a smaller amount of working capital.

If Foster Toys Has a Current Ratio of 3