Chua Company Has Has a Current Ratio of 2 The Company Paid an Account Payable of $175,000 Immediately on the Following

question 11

Multiple Choice

Chua Company has has a current ratio of 2.5 and the following assets on December 31, 2017: $\begin{array}{lr}\text { Cash } & \$ 300,000 \\\text { Accounts receivable, net } & 600,000 \\\text { Inventory } & 960,000 \\\text { Prepaid expenses } & 25,000 \\\text { Equipment, net } & 2,200,000 \\\hline \text { Total assets } & \$4,085,000\end{array}$ The company paid an account payable of $175,000 immediately on January 1, 2018.What effect did this have on the current ratio?

• A)An increase to 2.95
• B)There was no effect since both cash and accounts payable changed by the same amount.
• C)An increase to 2.50
• D)A decrease to 2.26

---

Definitions:

Direct Materials

Raw materials that can be directly traced to the production process and are a significant part of the finished product.

Raw Material

The basic substances or components that are processed and transformed into finished goods in manufacturing.

Fixed Overhead Volume Variance

The difference between the budgeted and actual volume of production, multiplied by the fixed overhead rate, indicating how fixed costs are allocated over different levels of output.

Fixed Overhead Budget Variance

This term refers to the difference between the budgeted fixed overhead costs and the actual fixed overhead costs incurred.