Pepsi Corporation's Current Ratio Is 0

question 12

Multiple Choice

Pepsi Corporation's current ratio is 0.5, while Coke Company's current ratio is 1.5. Both firms want to "window dress" their coming end-of-year financial statements. As part of their window dressing strategy, each firm will double its current liabilities by adding short-term debt and placing the funds obtained in the cash account. Which of the statements below best describes the actual results of these transactions?

• A) The transactions will have no effect on the current ratios.
• B) The current ratios of both firms will be increased.
• C) The current ratios of both firms will be decreased.
• D) Only Pepsi Corporation's current ratio will be increased.
• E) Only Coke Company's current ratio will be increased.

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Definitions:

Board Meeting

A formal gathering of the board of directors of an organization, company, or corporation to discuss and decide on company policy and management issues.

Liable

Being legally responsible or obligated.

Sarbanes-Oxley Act

A U.S. federal law that aims to protect investors by making corporate disclosures more reliable and accurate, enhancing financial transparency and accountability.

Audit Committee

A subcommittee of a company's board of directors responsible for overseeing financial reporting, audit processes, and compliance with laws and regulations.