The Miller Company's current ratio is greater than 1.0 to 1.By paying off some of its accounts payable using cash,what would be the effect on the company's current ratio?
A) An increase.
B) A decrease.
C) Remain unchanged.
D) Impossible to determine from the information given.

Question

Quizplus · Accepted Answer

Paying off accounts payable with cash decreases both current liabilities and current assets, but because the current ratio is greater than 1.0, the reduction in current liabilities has a proportionally larger positive impact on the current ratio than the reduction in current assets, leading to an increase in the current ratio.

The Miller Company's Current Ratio Is Greater Than 1