Three commonly used measures of liquidity are the working capital, current ratio and the acid-test ratio. For each of the following transactions, determine whether the measure will increase, decrease, or not change. Assume that both ratios are higher than 1 and that working capital is positive.

1. The company purchased $100,000 of inventory on account.
2. The accounts receivable ending balance for $400,000 includes one large credit balance for $85,000 for a customer. The accountant will report the credit balance as a current liability.
3. Depreciation expense is recorded as an adjusting entry.
4. Dividends for $90,000 that were previously declared are now paid in cash to the shareholders.
5. Merchandise costing $90,000, was sold on account for $100,000. The company uses the perpetual inventory system.
6. A customer makes a partial payment of $35,000 towards the amount owed on his accounts receivable.

Letter	Working Capital	Current Ratio	Acid Test Ratio
a)
b)
c)
d)
e)
f)