Pepsi Corporation\'s current ratio is 1.5, while Coke Company\'s current ratio i
ID: 2618604 • Letter: P
Question
Pepsi Corporation's current ratio is 1.5, while Coke Company's current ratio is 0.5. Both firms want to "window dress" their coming end-of-year financial statements. As part of their window dressing strategy, each firm will double its current liabilities by adding short-term debt and placing the funds obtained in the cash account. Which of the statements below best describes the actual results of these transactions?
Use, CR = CA/CL
The current ratios of both firms will be decreased
The transactions will have no effect on the current ratios
The current ratios of both firms will be increased.
Only Pepsi Corporation's current ratio will be increased.
Only Coke Company's current ratio will be increased.
A.The current ratios of both firms will be decreased
B.The transactions will have no effect on the current ratios
C.The current ratios of both firms will be increased.
D.Only Pepsi Corporation's current ratio will be increased.
E.Only Coke Company's current ratio will be increased.
Explanation / Answer
Correct option is E only coke company's current ratio will be increased
Current ratio of coke = 50/100
If liabilities will double then current liabilities = 200
and current asset will be 150
so current ratio = 150/200 = .75
In case of pepsi Current ratio = 150/100
so new current ratio = 250/200 = 1.25
so it will be decreased for Pepsi and increased for Coke.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.