GK
ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Identify the transaction that has no effect on the current ratio.
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Motor car sold for cash
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Bills receivable collected
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Machinery bought for cash
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Preference shares redeemed
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Explanation:
Detailed explanation-1: -When debentures are converted into equity capital there would be no changes in current assets and current liabilities and so no change in current ratio.
Detailed explanation-2: -Any transaction that decreases the current or quick assets without changing the current liabilities will decrease the ratio. So a sale of inventory that cost $60 for $100 in cash from a customer will increase cash by $100 and decrease inventory $60 so total current assets increased by $40.
Detailed explanation-3: -Answer and Explanation: A a) increase in current assets would result in an increase in the current ratio, but not necessarily the acid-test ratio.
There is 1 question to complete.