A Company's Current Ratio of 2:1 Will Decrease If the Company

question 76

Multiple Choice

A company's current ratio of 2:1 will decrease if the company

• A)declares a 10% stock dividend on its common stock
• B)receives cash from a customer on account
• C)pays a creditor on account
• D)purchases merchandise on account

---

Definitions:

Beginning Inventory

The value of all inventory held by a company at the start of an accounting period, before any purchases are made.

Operating Cycle

The operating cycle is the duration of time that takes for a company to purchase inventory, sell it to customers, and collect the cash from the sales.

Accounts Receivable

Outstanding payments due to a firm from its customers for delivered goods or services awaiting payment.

Cost of Goods Sold

The total direct costs attributed to producing goods, including materials and labor, which are sold during a certain period.