A company with $70,000 in current assets and $50,000 in current liabilities pays a $1,000 current liability. As a result of this transaction, the current ratio and working capital will
A) both decrease
B) both increase
C) increase and remain the same, respectively
D) remain the same and decrease, respectively

Question

Quizplus · Accepted Answer

The current ratio will increase because the reduction in current liabilities improves the ratio of current assets to current liabilities. Working capital remains the same because both current assets and current liabilities decrease by the same amount ($1,000).

A Company with $70,000 in Current Assets and $50,000 in Current