Asked by Jason Brownlee on Jun 16, 2024
Verified
Which of the following transactions would increase the current ratio of a company if the ratio is currently greater than 1?
A) Paid the principal on a long-term note payable.
B) Borrowed cash on a short-term note.
C) Sold inventory for more than cost.
D) Purchased supplies with cash.
Principal
The original amount of a debt or investment on which interest is calculated.
Long-Term Note
A debt security that matures in more than one year and can provide interest income over its term.
Current Ratio
A financial ratio indicating a firm's capacity to settle short-term debts using its current assets.
- Understand the impact of various transactions on the company's current ratio.
Verified Answer
AS
Ankush SodhiJun 18, 2024
Final Answer :
C
Explanation :
Selling inventory for more than cost would increase the company's current assets, specifically cash or accounts receivable, without affecting current liabilities, thereby increasing the current ratio. The other options would either decrease current assets (A and D) or increase current liabilities (B), leading to a decrease in the current ratio if it was initially greater than 1.
Learning Objectives
- Understand the impact of various transactions on the company's current ratio.
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