Ace Company Is a Retail Store

question 79

Multiple Choice

Ace Company is a retail store.Due to competition, it is having trouble selling its products.Thus, inventory has been building up.Ace's current ratio has not changed for the past three years, in spite of the inventory buildup.Which of the following statements is true?

• A)As long as the current ratio remains constant, there is no need for concern.
• B)The composition of current assets and current liabilities does not matter.
• C)The management of Ace should consider the effect of slow moving inventory on its liquidity.
• D)Since inventory is a current asset, any increases should automatically cause the current ratio to rise.

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