Alpha Enterprise has total current assets of $2,000,000 and total current liabilities of $800,000.If the company purchases $100,000 of inventory for cash,while none of its other assets and liabilities change,its current ratio will ________.
A)increase
B)decrease
C)stay the same
D)The answer cannot be determined from the information given.

Question

Quizplus · Accepted Answer

The current ratio is calculated as current assets divided by current liabilities. Before the purchase, the current ratio is $2,000,000 / $800,000 = 2.5. After purchasing $100,000 of inventory with cash, both the inventory (an asset) and cash (also an asset) change, but the total current assets remain $2,000,000, and current liabilities remain $800,000, so the current ratio remains 2.5, meaning it stays the same.

Alpha Enterprise Has Total Current Assets of $2,000,000 and Total