Safeco's Current Assets Total to $20 Million Versus $10 Million

question 101

Multiple Choice

Safeco's current assets total to $20 million versus $10 million of current liabilities, while Risco's current assets are $10 million versus $20 million of current liabilities. Both firms would like to "window dress" their end-of-year financial statements, and to do so they tentatively plan to borrow $10 million on a short-term basis and to then hold the borrowed funds in their cash accounts. Which of the statements below best describes the results of these transactions?

• A) The transactions would raise Safeco's financial strength as measured by its current ratio but lower Risco's current ratio.
• B) The transactions would lower Safeco's financial strength as measured by its current ratio but raise Risco's current ratio.
• C) The transaction would lower both firms' financial strength as measured by their current ratios.
• D) The transaction would improve both firms' financial strength as measured by their current ratios.

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Definitions:

Low Costs

Refers to minimal financial expenditure or the aim to reduce expenses in business operations or activities.

Formal Reporting

The process of officially documenting and presenting information or findings in a structured and standardized manner.

Mentoring Relationship

A mentoring relationship is a supportive and developmental partnership between a more experienced mentor and a less experienced mentee, aimed at fostering the mentee's personal and professional growth.

On-the-Job Training

On-the-job training is an instructional strategy involving hands-on experience where employees are taught the knowledge and skills needed for their specific job roles within the workplace.