Davis Retail Inc. has total assets of $7,500,000 and a current ratio of 2.3 times before

Question

purchasing $750,000 of merchandise on credit for resale. After this purchase, the current ratio will ??

a. remain at2.3 times.

b. be higher than2.3 times.

c. be lower than2.3 times.

d. be exactly2.53 times.}

ايمن محمد عاطف محمد · Answer

Correct answer c. Davis’ current ratio will be lower than2.3 times as shown below.
Before purchase: $7,500,000 ÷ X
=
2.3
X
=
$3,260,870
After purcha
se: ($7,500,000 + $750,000) ÷ ($3,260,870 + $750,000)
=
2.05

Irfan Rasheed · Answer

The correct answer is it should be lower than2.3 times

mohamed Hakim CMA CPA Candidate · Answer

this is one of CMA Practice Questions Book

Answer is >>> C : be lower than2.3 times.

Current Ratio = Current Assets / Current Liabilities .

then EXAMPLE WILL BE (8 /3.4783 ) This is for explanation = 2.3

Purchasing on Credit

debit / inventory (Goods) for sale 10 $ <<< increase Current Assets

credit / Accounts Payable 10$ <<< increase Current Liabilities

let us examine our first example = (8 +10) = 18 / (3.4783+10) = 13.4783

it will be = 1.3355 << less than 2.3

Adeel Salam Shaikh CPA, CMA · Answer

Should be Lower than2.3..............

DIN BANDHU SINGH · Answer

C ............................................................. (7500000+750000)/(3260870+750000) =2.05

Purushottam Thapa · Answer

Answer is -C option . It will be lower than2.3 times.

عبدالحميد عفلي · Answer

c...............................................................................

PRADEEP VELAYUDHAN · Answer

a) remains the same at2.3 --------------------------------------

Ahmed kandil · Answer

Answer ( A) is the correct answer
Thank you

Haris Junaid · Answer

a option is correct as same amount is added to current assets and current liability.

Khaled Mohee Eldeen Abbas Mahmoud · Answer

I think the correct answer is a. remain at2.3 times.

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Davis Retail Inc. has total assets of $7,500,000 and a current ratio of 2.3 times before

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