Fullerton Co.has the following information from its accounting records: $\begin{array}{lr}
\text { Current assets } & \$ 80,000 \
\text { Total assets } & 200,000 \
\text { Current liabilities } & 40,000 \
\text { Total liabilities } & 120,000
\end{array}$ If Fullerton uses cash of $10,000 to pay a current liability,its:
A)current ratio increases and its debt-to-assets ratio increases.
B)current ratio increases and its debt-to-assets ratio decreases.
C)current ratio decreases and its debt-to-assets ratio increases.
D)current ratio decreases and its debt-to-assets ratio decreases.

Question

Quizplus · Accepted Answer

The current ratio increases because the current assets decrease by $10,000 and the current liabilities decrease by $10,000, which results in a higher ratio (from 2.0 to 2.25). The debt-to-assets ratio decreases because the total liabilities decrease by $10,000 while total assets decrease by $10,000, resulting in a lower ratio (from 0.6 to 0.55).

Fullerton Co If Fullerton Uses Cash of $10,000 to Pay a Current