A Level Accounting (9706)•9706/13/M/J/22
Explanation
Boosting current assets more than liabilities
Steps:
- Recall current ratio formula: current assets ÷ current liabilities.
- Evaluate each option's impact on current assets (CA) and current liabilities (CL).
- Calculate net change: positive if CA rises more than CL, or CL falls more than CA.
- Select option with highest ratio improvement.
Why A is correct:
- Buying on credit adds 3000 cash replaces inventory with cash (net CA +2000), raising ratio per formula.
Why the others are wrong:
- B: Reduces CA by $1000 cash with no CL change, lowering ratio.
- C: Adds $10000 to non-current assets (not CA) and CL, decreasing ratio.
- D: Shifts $1000 from inventory to receivables (both CA), leaving totals unchanged.
Final answer: A
Topic: Analysis and communication of accounting information
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