Casey Communications recently issued new common stock and used the proceeds to pay off some of its short-term notes payable.This action had no effect on the company's total assets or operating income.Which of the following effects occurred as a result of this action?
A) The company's current ratio increased.
B) The company's times interest earned ratio decreased.
C) The company's basic earning power ratio increased.
D) The company's equity multiplier increased.
E) The company's total debt to total capital ratio increased.

Question

Quizplus · Accepted Answer

By issuing new common stock and using the proceeds to pay off some of its short-term notes payable, Casey Communications reduced its current liabilities, which in turn increased its current assets. This increase in current assets would increase the company's current ratio. The other ratios would not be affected since there was no change in the company's total assets or operating income.

Casey Communications Recently Issued New Common Stock and Used the Proceeds