One Common Problem with the Current Ratio Is That It

question 49

Multiple Choice

One common problem with the current ratio is that it is susceptible to "window dressing". If prior to the end of the accounting period Streetwise Company has a current ratio of 1.5 and management wishes to boost its current ratio it may decide to

• A) pay off accounts payable prior to year end.
• B) purchase more inventory on account.
• C) purchase short-term investments with cash.
• D) purchase more inventory with cash.