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

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

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

 

 

 

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

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 --------------------------------------

Answer ( A) is the correct answer Thank you

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.