If the current ratio is 2,what will be the effect of the payment of a cash dividend,which was recorded as a liability on the date of declaration?

A) An increase in the current ratio.
B) A decrease in the current ratio.
C) No effect on the current ratio.
D) A decrease in the cash coverage ratio.

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Chyna Clarke · Accepted Answer

Final Answer : A, Explanation :  The payment of a cash dividend reduces both current liabilities and current assets by the same amount, but since the current ratio is greater than 1, the reduction in liabilities will have a proportionally larger effect, thus increasing the current ratio.

If the current ratio is 2,what will be the effect of the payment of a cash dividend,which was recorded as a liability on the date of declaration?

A) An increase in the current ratio.
B) A decrease in the current ratio.
C) No effect on the current ratio.
D) A decrease in the cash coverage ratio.

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Related questions

If the current ratio is 2,what will be the effect of the payment of a cash dividend,which was recorded as a liability on the date of declaration?A) An increase in the current ratio.B) A decrease in the current ratio.C) No effect on the current ratio.D) A decrease in the cash coverage ratio.

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Learning Objectives

Learning Objectives

Related questions

If the current ratio is 2,what will be the effect of the payment of a cash dividend,which was recorded as a liability on the date of declaration?

A) An increase in the current ratio.
B) A decrease in the current ratio.
C) No effect on the current ratio.
D) A decrease in the cash coverage ratio.