Ringer Corporation had a current ratio of 3.1 at the end of 2013.Current assets and current liabilities increased by equal amounts during 2014.The effects on net working capital and on the current ratio,respectively,were
A) no effect;increase.
B) no effect;decrease.
C) increase;increase.
D) decrease;decrease.

Question

Quizplus · Accepted Answer

When current assets and current liabilities increase by equal amounts, net working capital (current assets minus current liabilities) remains unchanged. However, the current ratio (current assets divided by current liabilities) decreases because the proportional increase in current liabilities is greater relative to the current assets due to the original ratio being greater than 1.

Ringer Corporation Had a Current Ratio of 3