Assume a Company Now Has a Current Ratio of 3

question 57

Multiple Choice

Assume a company now has a current ratio of 3. Just before year end, it decides to pay back some of its current liabilities, using its cash. Which of the following statements is correct regarding the effect of this decision?

• A) The current ratio will decrease.
• B) Its interest coverage ratio will increase.
• C) Its capital structure leverage ratio will decrease.
• D) Its return on assets will decrease.

Comprehend the requirements for financial statement presentation under IFRS and GAAP, including the classification and valuation of assets, liabilities, and equity.

Understand and prepare the components of a classified balance sheet.

Identify and correct common accounting errors.

Prepare adjusting and closing entries.

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Definitions:

Stackelberg Firm

A business that is considered a leader in a market, setting prices or quantities that followers in the market then respond to.

Incentive

A motivation or reward offered to encourage specific behaviors or actions, often used in business, economics, and psychology.

Accommodation

The provision of a place to stay or the process of adjusting something to match a certain need.

War

A state of armed conflict between different countries or different groups within a country.