Answer (A) is correct . Using cash to pay accounts payable will affect both ratios in a positive way. For instance, before the payment, current assets totaled $740,000 and current liabilities were $140,000, yielding a current ratio of 5.29. Paying $40,000 of the accounts payable ($80,000 ¡Á 50%) would reduce current assets to $700,000 and current liabilities to $100,000, for a new current ratio of 7.67. The quick assets would decline from $300,000 to $260,000, and the current liabilities from $140,000 to $100,000, for a new quick ratio of 2.78, an increase over the old ratio of 2.14.Answer (B) is incorrect because Both ratios will increase as a result of using cash to pay 50% of the accounts payable.
Answer (C) is incorrect because Both ratios will increase as a result of using cash to pay 50% of the accounts payable.
Answer (D) is incorrect because Both ratios will increase as a result of using cash to pay 50% of the accounts payable.
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The company has an operating cycle of 5 months.What will happen to the ratios below if CPZ Enterprises uses cash to pay 50% of the accounts payable? What will happen to the ratios below if CPZ Enterprises uses cash to pay 50% of the accounts payable? Current Ratio Quick Ratio