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

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.}

 

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Question added by mohamed Hakim CMA CPA Candidate , Accounting Manager , Andersen saudi arabia
Date Posted: 2015/06/09
ايمن محمد عاطف محمد
by ايمن محمد عاطف محمد , Director of the control and regulation unit , ACOLID

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
by Irfan Rasheed , Chief Internal Auditor , First Al-Noor Modaraba

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

mohamed Hakim CMA CPA Candidate
by mohamed Hakim CMA CPA Candidate , Accounting Manager , Andersen saudi arabia

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
by Adeel Salam Shaikh CPA, CMA , Accounting Manager , Keltour Controls Inc.

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

DIN BANDHU SINGH
by DIN BANDHU SINGH , Chief Accountant , ELITE TRADING ALLIANCE CO (El Seif Group of Companies)

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

Purushottam Thapa
by Purushottam Thapa , GENERAL ACCOUNTANT , KHAYARAT FAHUD LLC

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

عبدالحميد عفلي
by عبدالحميد عفلي , متصرّف مسؤول المحاسبة العامة والنزاعات الجبائية , الشركة الجهوية للنقل بالقيروان

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

 

PRADEEP VELAYUDHAN
by PRADEEP VELAYUDHAN , Chief Accountant , Super Group

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

Ahmed kandil
by Ahmed kandil , Cost Controller , Battour Holding Cpompany

Answer ( A) is the correct answer Thank you

Haris Junaid
by Haris Junaid , Senior Consultant , KPMG Lower Gulf

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

Khaled Mohee Eldeen Abbas Mahmoud
by Khaled Mohee Eldeen Abbas Mahmoud , Chartered Accountant # 10465 , Self-employed

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