GK
ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The current ratio of a company is 2 : 1. Which of the following suggestions would improve the ratio?
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To pay a current liability
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To purchase stocks for cash
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To borrow money on an interest-bearing promissory note
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To give an interest-bearing promissory note to a creditor to whom money was owed on current account
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Explanation:
Detailed explanation-1: -Generally, a current ratio of 2:1 is considered ideal, which means that the current assets must be twice the amount of current liabilities.
Detailed explanation-2: -Answer and Explanation: Accounts receivable are current assets. Increasing the accounts receivable will increase the current assets and increase the current ratio. An increase in the accounts payable will increase the current liabilities.
Detailed explanation-3: -In general, investors look for a company with a current ratio of 2:1, meaning current assets twice as large as current liabilities. A current ratio less than one indicates the company might have problems meeting short-term financial obligations.
There is 1 question to complete.