Mother's Company has current assets of $900,000 and current liabilities of $1,000,000.Mother's Company's current ratio would be increased by
A)borrowing $100,000 on a line-of-credit (short-term loan).
B)purchase of merchandise inventory costing $100,000 cash.
C)purchase of marketable equity securities for $100,000 cash.
D)paying $100,000 of wages payable.
E)none of the above.

Question

Quizplus · Accepted Answer

By borrowing $100,000 on a line-of-credit (short-term loan), the current assets will increase by $100,000, and the current liabilities will increase by $100,000, and thus, the current ratio would increase. The purchase of merchandise inventory or marketable equity securities would not affect the current ratio as it would only increase both current assets and current liabilities. Paying wages payable would decrease both current assets and current liabilities, and thus, the current ratio would not change.

Mother's Company Has Current Assets of $900,000 and Current Liabilities