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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.}
The correct answer is it should be lower than2.3 times
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
C ............................................................. (7500000+750000)/(3260870+750000) =2.05
Answer is -C option . It will be lower than2.3 times.
c...............................................................................
a) remains the same at2.3 --------------------------------------
a option is correct as same amount is added to current assets and current liability.
I think the correct answer is a. remain at2.3 times.
