If the current ratio is equal to four and we double the current liabilities and half the current assets,what will the new current ratio equal?
A) 1
B) 2
C) 8
D) 16

Question

Quizplus · Accepted Answer

The current ratio is given by current assets divided by current liabilities. If the current ratio is initially 4, then:

Current assets/Current liabilities = 4

If we double the current liabilities and half the current assets, we get:

New current assets = Current assets/2 
New current liabilities = 2 x Current liabilities

So the new current ratio would be:

New current assets/New current liabilities = (Current assets/2)/(2 x Current liabilities) 
= Current assets/(4 x Current liabilities) 
= 1/4

Therefore, the new current ratio would be 1/4 or 0.25, which is equivalent to choice A) 1.

If the Current Ratio Is Equal to Four and We