A company's current ratio and acid-test ratios are both greater than 1.Issuing bonds to finance purchase of an office building with the first installment of the bonds due in the current year would:
A)decrease net working capital.
B)decrease the current ratio.
C)decrease the acid-test ratio.
D)affect all of the above as indicated.

Question

Quizplus · Accepted Answer

Issuing bonds increases total debt and decreases net working capital. Since current assets are not affected, the current ratio and acid-test ratio will both decrease.

A Company's Current Ratio and Acid-Test Ratios Are Both Greater