If a company converts a short-termnote payable into a long-term note payable,what would be the effect of this transaction?
A) A decrease in working capital and an increase in the current ratio.
B) A decrease in both working capital and the current ratio.
C) A decrease in both the current ratio and the acid-test ratio.
D) An increase in both working capital and the current ratio.

Question

Quizplus · Accepted Answer

Converting a short-term note payable into a long-term note payable increases the amount of time the company has to pay off the debt, which can increase working capital (the difference between current assets and current liabilities) and increase the current ratio (current assets divided by current liabilities). This is because the amount of current liabilities decreases with the shift to a long-term classification, which could result in a lower percentage of these in relation to the current assets.

If a Company Converts a Short-Termnote Payable into a Long-Term