Safeco's Current Assets Total to $20 Million Versus $10 Million

question 28

Multiple Choice

Safeco's current assets total to $20 million versus $10 million of current liabilities,while Risco's current assets are $10 million versus $20 million of current liabilities.Both firms would like to "window dress" their end-of-year financial statements,and to do so they tentatively plan to borrow $10 million on a short-term basis and to then hold the borrowed funds in their cash accounts.Which of the statements below best describes the results of these transactions?

• A)The transactions would improve Safeco's financial strength as measured by its current ratio but lower Risco's current ratio.
• B)The transactions would lower Safeco's financial strength as measured by its current ratio but raise Risco's current ratio.
• C)The transactions would have no effect on the firm' financial strength as measured by their current ratios.
• D)The transactions would lower both firm' financial strength as measured by their current ratios.
• E)The transactions would improve both firms' financial strength as measured by their current ratios.

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Definitions:

Custom

A traditional and widely accepted way of behaving or doing something that is specific to a particular society, place, or time.

Strengthen Capitalism

Efforts or actions taken to bolster the efficiency, competitiveness, and innovation within capitalist economic systems.

Safer Working Conditions

Refers to workplace environments designed to minimize risk of injury or harm to employees, adhering to health and safety regulations.

Scientific Management

A management theory developed by F.W. Taylor aiming to improve economic efficiency and labor productivity through systematic study and analysis of work processes.