Pepsi Corporation's Current Ratio Is 0

question 12

Multiple Choice

Pepsi Corporation's current ratio is 0.5, while Coke Company's current ratio is 1.5. Both firms want to "window dress" their coming end-of-year financial statements. As part of their window dressing strategy, each firm will double its current liabilities by adding short-term debt and placing the funds obtained in the cash account. Which of the statements below best describes the actual results of these transactions?

• A) The transactions will have no effect on the current ratios.
• B) The current ratios of both firms will be increased.
• C) The current ratios of both firms will be decreased.
• D) Only Pepsi Corporation's current ratio will be increased.
• E) Only Coke Company's current ratio will be increased.

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Definitions:

Computer

An electronic device capable of manipulating data or information, allowing for storage, retrieval, and processing to perform various tasks.

Capital

The financial resources available for use, such as cash, goods, or property, invested to create profit.

Shift of Assets

The reallocation or transfer of assets from one part of a company to another, or between companies, which can affect financial statements and tax liabilities.

Composition

An artistic arrangement of elements within a work of art, or the structure and arrangement of various components in a written document or piece of music.