When a company with a current ratio of 1.2 pays a current liability:
A)Its current ratio decreases.
B)Its current ratio increases.
C)Its current ratio remains unchanged.

Question

Quizplus · Accepted Answer

When a company with a current ratio greater than 1 pays off a current liability, its current ratio increases. This is because paying off a current liability decreases current liabilities more than it decreases current assets, assuming the payment is made using current assets, thus improving the current ratio.

When a Company with a Current Ratio of 1