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

question 188

Multiple Choice

If a company converts a short-termnote payable into a long-term note payable,what would be the effect of this transaction?

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

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Definitions:

Effective Yield

The total yield on an investment, taking into account all compounding periods, fees, and other factors affecting the actual return.

Stated Rate

The interest rate declared on a financial instrument, such as a bond or loan, not taking into account compounding or fees.

Par

The face value of a bond or security, often used in the context of bonds trading at, above, or below their issued price.

Market Rate

The prevailing interest rate available in the marketplace for similar financial instruments or loans.