Zack Company Has a Current Ratio of 2

question 221

Short Answer

Zack Company has a current ratio of 2.5.What will be the effect of a purchase of inventory with cash on the acid-test ratio and on working capital? $\begin{array}{cc}&\text { Acid-Test Ratio } & \text { Working Capita } \\A)&\text { decrease } & \text { decrease } \\B)&\text { decrease } & \text { no effect } \\C)&\text { no effect } & \text { decrease } \\D)&\text { no effect } & \text { no effect }\end{array}$

• A)&\text { decrease } & \text { decrease } \\
• B)&\text { decrease } & \text { no effect } \\
• C)&\text { no effect } & \text { decrease } \\
• D)&\text { no effect } & \text { no effect }
• \end{array}\)

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Definitions:

Tax Planning

The process of analyzing one's financial situation or plan to ensure tax efficiency, with the aim of minimizing tax liability and maximizing compliance.

Market Research

The process of gathering, analyzing, and interpreting information about a market, including potential customers and competitors, to inform business decisions.

Auditing

The process of examining an organization's financial records to ensure accuracy and compliance with accounting standards and regulations.

Regulators

Authorities or agencies responsible for supervising and enforcing laws within a particular industry or sector to ensure safety, fairness, and compliance.