If a Company Has an Acid-Test Ratio of 1

question 49

Short Answer

If a company has an acid-test ratio of 1.2:1, what respective effects will the borrowing of cash by short-term debt and collection of accounts receivable have on the ratio? $$\begin{array} { l c c } & \text { Short-term Borrowing } & \text { Collection of Receivable } \\\text { a. } & \text { Increase } & \text { No effect } \\\text { b. } & \text { Increase } & \text { Increase } \\\text { c. } & \text { Decrease } & \text { No effect } \\\text { d. } & \text { Decrease } & \text { Decrease }\end{array}$$

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