If a Company Converts a Short-Term Note Payable into a Long-Term

question 1

Multiple Choice

If a company converts a short-term note payable into a long-term note payable, this transaction would:

• A) decrease working capital and increase the current ratio.
• B) decrease working capital and decrease the current ratio.
• C) decrease the current ratio and decrease the acid-test ratio.
• D) increase working capital and increase the current ratio.

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Definitions:

Liability

A legal obligation or responsibility that can arise from contracts, torts, or other legal matters, potentially resulting in the need to pay damages or perform specific acts.

Airplane Manufacturers

Companies or entities that design, produce, and often test aircraft for civilian or military use.

Accident Rates

The frequency or proportion of accidents occurring in a particular context or organization over a specified period.

Moral Hazard

The risk that one party to a contract can change their behavior to the detriment of another after the contract has been completed.