The balance sheet of Werther Company showed the following data about its common

Question

The balance sheet of Werther Company showed the following data about its common stock, par $1: authorized shares, 10,000,000; oustsanding shares, 4,300,000; and issued shares 7,700,000. Therefore, the number of treasure stock shares was
A. 7,700,000
B. 4,300,000
C. 3,400,000
D. 0

2nd part:

in 2009, Werther Co. reported a current ratio of 3.75 and in 2008 it was 3.10. Which of the following is a potential cause of a rise in this ratio?
A. An increase in accounts receivable
B. An increase in accounts payable
C. An increase in short-term borrowing
D. A decrease in prepaid rent
E. All of the above

Explanation / Answer

1. C: 3,400,000 shares. This is because 7,700,000 shares have been issued, but only 4,300,000 are outstanding, which implies that 3,400,000 shares have been issued, and subsequently bought back as treasury shares. 2. A: increase in accounts receivable. Current ratio = current asset / current liability. Choice A represents an increase in current assets. Choice B and C represents an increase in current liability, thereby reducing current ratio. Choice D represents the decrease in current asset, thereby reducing current ratio.

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