Question
Pepsi Corporation's current ratio is 1.5, while Coke Company's current ratio is 1.0. Both firms want to window dress their coming end-of-year financial statements. As
Pepsi Corporation's current ratio is 1.5, while Coke Company's current ratio is 1.0. Both firms want to "window dress" their coming end-of-year financial statements. As part of their window dressing strategy, each firm will halve its current liabilities by repaying short-term debt with the cash in the bank. Which of the statements below best describes the actual results of these transactions? Use, CR = CA/CL
A. | The transactions will have no effect on the current ratios | |
B. | The current ratios of both firms will be decreased | |
C. | Only Pepsi Corporation's current ratio will be increased. | |
D. | The current ratios of both firms will be increased. | |
E. | Only Coke Company's current ratio will be increased. |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started