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Nelly Inc. reported net credit sales of $24,000,000 and cost of goods sold of $18,000,000 for the year. The average inventory for the year was $6,000,000.
-Best Baskets Limited (BBL) had a current ratio of 0.8:1 before borrowing $50,000 from the bank with a short-term note payable. What effect did the borrowing transaction have on BBL's current ratio?
A) The ratio remained unchanged.
B) The ratio decreased.
C) The ratio increased.
D) Cannot be determined.

Question

Quizplus · Accepted Answer

The borrowing transaction increased BBL's current assets (cash) by $50,000 and increased its current liabilities (short-term note payable) by $50,000. Therefore, the current ratio increased.

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