If a Company Has a Current Ratio of 1 $\quad$ Collection of Receivable
A

question 242

Short Answer

If a company has a current 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? Short-term Borrowing $\quad$ Collection of Receivable
a. $\quad$ Increase $\quad$ $\quad$ $\quad$ No effect
b. $\quad$ Increase $\quad$ $\quad$ $\quad$ Increase
c. $\quad$ Decrease $\quad$ $\quad$ $\quad$ No effect
d. $\quad$ Decrease $\quad$ $\quad$ $\quad$ Decrease

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Definitions:

Account Payable

The liability created by a purchase on account.

Solvency Analysis

An assessment of a company's ability to meet its long-term financial obligations.

Noncurrent Liabilities

Financial obligations of a company that are not due to be settled within one year, including long-term loans, bonds payable, and long-term lease obligations.

Current

In finance, "current" typically refers to assets and liabilities that are expected to be realized or settled within one year from the reporting date.