1- A company with $70,000 in current assets and $50,000 in current liabilities p

Question

1- A company with $70,000 in current assets and $50,000 in current liabilities pays a $1,000 current liability. As a result of this transaction, the current ratio and working capital will

a.both increase

b.increase and remain the same, respectively

c.remain the same and decrease, respectively

d.both decrease

2 - The following information pertains to Diane Company. Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit. Use this information to answer the question that follow.

Using the data provided for Diane Company, what is the asset turnover?

Assets Cash and short-term investments $ 30,000 Accounts receivable (net) 20,000 Inventory 15,000 Property, plant, and equipment   185,000 Total assets $250,000

Explanation / Answer

1) IF current liabilties pay that means cash decrease and current liabilties decrease by same amount so working capital will remain same but current ratio increase

so answer is b) increase and remain the same, respectively

2) Assets turnover = Sales/Assets = 85000/250000 = 0.34 Times

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