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The following information is taken from the balance sheet of Menendez Company on January 1, Year 1:

-On January 1,Year 1 Menendez Company paid $2,000 cash to reduce its accounts payable.
How will this transaction affect the current ratio?

Question

[The following information applies to the questions displayed below.]
The following information is taken from the balance sheet of Menendez Company on January 1, Year 1:
 
-On January 1,Year 1 Menendez Company paid $2,000 cash to reduce its accounts payable.
How will this transaction affect the current ratio?

Quizplus · Accepted Answer

Current ratio = Current assets ÷ Current liabilities
Before transaction: Current ratio = $12,000 ÷ $4,000 = 3 to 1
After transaction: Current ratio = ($12,000 ? $2,000) ÷ ($4,000 ? $2,000) = 5 to 1

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