A company has a debt contract in place which requires that the company's working capital (ratio of current asset to current liabilities)must never fall below 2.As balance date approaches,the company estimates that the working capital ratio will be 1.9 and the company may default on its debt contract unless remedial action is taken.Which of the following action(s)will increase the company's working capital at balance day?

Question

Quizplus · Accepted Answer

Accelerating the recognition of credit sales increases current assets without immediately affecting current liabilities, thus improving the working capital ratio. Revaluing plant and equipment, increasing allowance for doubtful debts, and increasing provision for warranty claims do not directly affect the ratio of current assets to current liabilities in a way that would improve the working capital ratio.

A Company Has a Debt Contract in Place Which Requires