Question:
Answer:
a. The current ratio equals current assets divided by current liabilities. An equal increase in both the
numerator and denominator of a current ratio less than 1.0 causes the ratio to increase.
Windham Company’s current ratio is .8 ($400,000 ÷ $500,000). The purchase of $100,000 of
inventory on account would increase the current assets to $500,000 and the current liabilities
to $600,000, resulting in a new current ratio of .833.
Answer:
a. The current ratio equals current assets divided by current liabilities. An equal increase in both the
numerator and denominator of a current ratio less than 1.0 causes the ratio to increase.
Windham Company’s current ratio is .8 ($400,000 ÷ $500,000). The purchase of $100,000 of
inventory on account would increase the current assets to $500,000 and the current liabilities
to $600,000, resulting in a new current ratio of .833.
