You observe that a company's current ratio has increased significantly.This could indicate that:
A)contingent liabilities are not recorded.
B)accounts payable is understated.
C)expenses are inappropriately capitalized as assets.
D)fixed assets are overstated.

Question

Quizplus · Accepted Answer

An increase in the current ratio means that the company's current assets have increased relative to its current liabilities. One possible reason for this could be that accounts payable is understated, which would result in a higher current ratio because current liabilities are lower than they should be. If contingent liabilities are not recorded or expenses are inappropriately capitalized as assets, this would have the opposite effect and would lower the current ratio. Overstating fixed assets may or may not affect the current ratio, depending on whether they are included in current assets.

You Observe That a Company's Current Ratio Has Increased Significantly