Use the Information on January 1,Year 1 to Determine the Effect

question 44

Multiple Choice

Use the information on January 1,Year 1 to determine the effect of the following entry on the current ratio of Menendez Company:

How will this transaction affect the current ratio?

• A)It have no effect on the current ratio.
• B)It will cause the current ratio to increase.
• C)It will cause the current ratio to decrease.
• D)It will potentially affect the current ratio,but the direction of the change cannot be determined without more information.

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Definitions:

Accounts Receivable

Funds that a business has yet to receive from its customers for the products or services it has already provided.

Direct Method

An approach to allocate service department costs directly to producing departments without reciprocal services considered.

Sales Revenue

The total amount of money generated from the sale of goods or services by a company before any expenses are subtracted.

Accounts Receivable

Amounts owed to a company by its customers for goods or services that have been delivered or used but not yet paid for.