When a Company with a Current Ratio of 1

question 53

Multiple Choice

When a company with a current ratio of 1.2 pays a current liability:

• A)Its current ratio decreases.
• B)Its current ratio increases.
• C)Its current ratio remains unchanged.

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Definitions:

Face Value

The nominal or dollar value printed on a security or currency, representing its legal value.

Note Receivable

A written promise for amounts to be received by a business, typically including interest.

Allowance Method

An accounting technique used to account for bad debts, where an estimated amount is deducted from accounts receivable to reflect possible non-collection.

Bad Debts

are amounts owed to a company that are considered uncollectible, leading to a financial loss.