ACCA Applied Knowledge · Financial Accounting · Analysis of financial statements
Zeta Co's current ratio is 1.5:1 with current assets of $300,000. The company uses $50,000 of cash to pay trade payables. What is the current ratio after the payment, assuming cash was part of current assets?
The current ratio rises to 1.67:1. Current liabilities were $200,000 ($300,000 divided by 1.5). Paying $50,000 reduces both current assets to $250,000 and current liabilities to $150,000, so the ratio improves because it was above one.
- A1.67:1Correct
- B1.50:1
- C1.25:1
- D2.00:1
Explanation
Current liabilities = 300,000/1.5 = 200,000. After payment, current assets = 250,000 and current liabilities = 150,000, giving 250/150 = 1.67:1. Option 3 wrongly reduces only assets.
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