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:

Conditioning

A process of behavior modification in which a subject comes to respond in a desired manner to a previously neutral stimulus, by associating it with a stimulus that elicits an automatic response.

Classical Conditioning

A learning process that occurs when two stimuli are repeatedly paired together; a response that is at first elicited by the second stimulus is eventually elicited by the first stimulus alone.

Operant Conditioning

A learning process where the strength of a behavior is modified by reinforcement or punishment.

Observational Conditioning

A learning process where an individual acquires behaviors by observing and imitating others.