A Company Has the Following Current Assets and Current Liabilities

question 30

Multiple Choice

A company has the following current assets and current liabilities (all figures in '000s) : $$\begin{array} { l r } \text { Cash and accounts receivable } & \$ 1,000 \\\text { Inventory and prepaid expenses } & 1,000 \\\text { Current liabilities } & 1,500\end{array}$$ The company is concerned about not looking liquid enough and is considering borrowing $500,000 from the bank to buy short-term highly liquid investments.What would be the effect on their current ratio and quick ratio? $\begin{array}{ll}&\text { Current } & \text { Quick } \\&\text { Ratio } & \text { Ratio }\\A.&\text { Increase } & \text { Increase } \\B.&\text { Increase } & \text { Decrease } \\C.&\text { Decrease } & \text { Increase } \\D.&\text { Decrease } & \text { Decrease }\end{array}$

• A)Option A
• B)Option B
• C)Option C
• D)Option D

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Definitions:

Criteria Evaluation

The process of assessing something based on a set of standards or benchmarks to make a judgment or decision.

Yardstick Approach

A method of evaluation that involves comparing a current situation or performance against a standard measure or "yardstick."

Logical Arguments

Reasoning that follows a clear, structured line of thought, typically leading from premises to a conclusion.

Benchmarks

Standard points of reference against which things may be compared or assessed.