A company has a current ratio of 2:1 and total current liabilities of $100,000. The company wants to purchase inventory worth $50,000 on credit. Will this purchase affect the company's current ratio? If yes, by how much?

Answer rating: 100% (QA)

The detailed answer for the above question is provided below The current ratio is calculated as follows Current ratio Current assets Current liabilities If the company purchases inventory worth 50000 on credit the companys current assets and current liabilities will increase by 50000 each Therefore the new current ratio can be calculated as Current ratio Current assets 50000 Current liabilities 50000 We know that the current ratio was 21 which means that the current assets were twice the current liabilities Therefore we can use this ratio to calculate ... View the full answer