Assume a fiRm's Current Ratio Equals 3

question 142

Multiple Choice

Assume a firm's current ratio equals 3.1. Which of the following actions would increase it?

• A) Discarding and writing off spoiled inventory.
• B) Receiving a full cash payment on an account receivable.
• C) Paying off a short-term bank loan with the proceeds from new long-term debt.
• D) Purchasing new fixed assets using the proceeds from a new stock issue.
• E) Buying inventory on credit, thereby increasing accounts payable.

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Definitions:

Decision Processes

The series of steps or stages involved in selecting among alternatives based on criteria and eventual outcomes.

Reporting Principles

The foundational guidelines that govern the preparation and presentation of financial reports, ensuring accuracy, consistency, and transparency.

Historical Cost Principle

An accounting principle that requires financial statements to be based on the original cost of an asset, rather than its current market value.

Consistency Principle

An accounting principle that requires entities to apply the same accounting methods and policies from period to period unless a change is justified and disclosed.