If a Company Has an Acid-Test Ratio of 1

question 84

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? $\begin{array}{lll}&\text { Short-term Borrowing }&\text {Collection of Receivable }\\\text { a. } & \text { Increase } & \text { No effect } \\\text { b. } & \text { Increase } & \text { Increase } \\\text { c. } & \text { Decrease } & \text { No effect } \\\text { d. } & \text { Decrease } & \text { Decrease }\end{array}$

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Definitions:

Statement of Income

The statement of income, also known as an income statement or profit and loss statement, is a financial document that outlines a company's revenues, expenses, and net income over a specific period, demonstrating the company's financial performance.

Dividend Yield

The measure of how much a company pays out in dividends each year relative to its stock price, often expressed as a percentage.

Net Income

Net income is the total profit of a company after all expenses, taxes, and costs have been deducted from total revenues.

Market Price

The current price at which an asset or service can be bought or sold.