Challenge Question 1. Assume Nathan Company has a current ratio of 2.0 to 1. If Nathan purchases $20,000 of supplies on account, to be paid within 30 days, what effect (increase, decrease, or no effect) would this transaction have on Nathan's working capital and current ratio? Note that Nathan's journal entry to recognize the purchase of the supplies would be the following: Supplies Inventory (+A) 20,000 Accounts Payable (+L) 20,000 Hint: It is easier to evaluate the impact of transactions on ratios by first creating hypothetical numbers consistent with the ratio. For example, to get the current ratio of 2.0 to 1, I can assume current assets are $20,000 and current liabilities are $10,000. Working capital is $10,000. Now think about the impact of purchasing the supplies on working capital and the current ratio. Again, assume the current ratio is 2.0 to 1. What effect would buying $20,000 of supplies by obtaining a loan payable from the supplier that is due in 2 years will have on Nathan's working capital and current ratio? 2