If the current ratio is 2,what will be the effect of the payment of a cash dividend,which was recorded as a liability on the date of declaration?
A)An increase in the current ratio.
B)A decrease in the current ratio.
C)No effect on the current ratio.
D)A decrease in the cash coverage ratio.

Question

Quizplus · Accepted Answer

The payment of a cash dividend reduces both current liabilities and current assets by the same amount, but since the current ratio is greater than 1, the reduction in liabilities will have a proportionally larger effect, thus increasing the current ratio.

If the Current Ratio Is 2,what Will Be the Effect