One Common Problem with the Current Ratio Is That It

question 80

Multiple Choice

One common problem with the current ratio is that it is susceptible to "window dressing." If prior to the end of the accounting period Saxon Company has a current ratio of 1.5 and management wishes to boost its current ratio it may decide to:

• A) pay off accounts payable prior to year-end.
• B) purchase more inventory on account.
• C) purchase short-term investments with cash.
• D) purchase more inventory with cash.

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Definitions:

Degrees Of Freedom

The number of independent values or quantities which can be assigned to a statistical distribution or a system without violating any constraint.

Catalysts

Substances that increase the rate of a chemical reaction without themselves being consumed in the process.

Reaction Times

The amount of time taken to respond to a stimulus or task.

Degrees Of Freedom

The number of independent pieces of information upon which the estimation or calculation of a statistic is based.