Chua Company Had a Current Ratio of 2 What Impact Will the Sale of Inventory to Customers for on December

question 131

Multiple Choice

Chua Company had a current ratio of 2.5 to 1 on December 31, 2017.On that date, the company's assets were as follows: $\begin{array}{lr}\text { Cash } & \$ 100,000 \\\text { Accounts receivable, net } & 600,000 \\\text { Inventory } & 960,000 \\\text { Prepaid expenses } & 25,000 \\\text { Equipment, net } & 2,200,000 \\\text { Total assets } & \$ 3,885,000 \\\end{array}$ What impact will the sale of inventory to customers for cash have on Chua's debt-to-equity ratio?

• A)An increase in the debt-to-equity ratio
• B)A decrease in the debt-to-equity ratio
• C)No efffect on the debt-to-equity ratio
• D)There is not enough information provided to determine the answer.

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Definitions:

Compound

Composed of two or more elements, parts, or substances.

Atomic

Relating to the basic, indivisible entities or components of a system.

Truth-functional Compound

A logical compound statement whose truth value is determined by the truth values of its component parts.

Quantifier

A symbol or word used in logic to express the quantity of specimens that a proposition pertains to, such as "all", "some", or "none".