Assume the current ratio is 3 to 1. Estimating the warranties expense on the period's sales would cause the current ratio to
A) be unchanged since it has no effect on any current accounts.
B) be unchanged since the effects offset one another.
C) decrease.
D) increase.

Question

Quizplus · Accepted Answer

Estimating warranties expense increases liabilities (warranty liability) without affecting current assets, thus decreasing the current ratio.

Assume the Current Ratio Is 3 to 1