If a Company Converted a Short-Term Note Payable into a Long-Term

question 81

Multiple Choice

If a company converted a short-term note payable into a long-term note payable, this transaction would:

• A)increase only working capital.
• B)decrease only working capital.
• C)have no effect on either the current ratio or net working capital.
• D)increase both working capital and the current ratio.
• E)decrease both working capital and the current ratio.

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Definitions:

Indirect Method

A cash flow statement preparation approach that adjusts net income for non-cash transactions and changes in working capital to calculate operating cash flow.

Comparative Balance Sheet

A financial statement that presents a company's assets, liabilities, and equity at two or more points in time, allowing for comparison and trend analysis.

Operating Activities

Operating activities include the primary revenue-generating activities of a business, as well as other activities that are not investing or financing activities, reflecting the company's core operations cash flow.

Comparative Balance Sheet

A financial statement that provides a snapshot of a company's assets, liabilities, and equity at two or more points in time for comparison.