Emerald Corporation's Current Ratio Is 0

question 71

Multiple Choice

Emerald Corporation's current ratio is 0.5, while Ruby (Emerald's competitor) 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 Emerald Corporation's current ratio will be increased.
• E)Only Ruby Company's current ratio will be increased.

Grasp the importance of choosing the appropriate activity base for costs.

Understand the concept of the relevant range and its importance in cost behavior analysis.

Calculate break-even points and understand their significance in business decision-making.

Apply knowledge of cost behavior to evaluate changes in cost structures and their impact on a company’s financial health.

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Definitions:

Free Trade

The exchange of goods and services between nations without restrictive regulations such as tariffs, duties, or quotas, intended to create more efficient markets.

International Trade

The exchange of goods, services, and capital across international borders or territories.

Buyers Better Off

Refers to a situation in which consumers have an improved position, typically through lower prices, better quality, or more choices available in the market.

No-Trade Situation

A scenario in which countries or entities do not engage in international trade, often due to policies or barriers.