A company accrued wages of $2,000 and collected accounts receivable of $10,000. What are the most likely effects of these two transactions on the company’s current ratio and CFO, respectively? (I-increase, D-decrease) CR CFO A. I I B. I D C. D I D. D D
Does collected AR mean AR Reduction, Cash Increase> If it does – That will increase CR, Increase CFO Wage Payable Increase (Accrued wages) Means Liability increases – do Current ratio will drop, CFO will increase So CFO would be a net Increase because of both items. For current ratio - Numerator remains unchanged, denominator increases, so CR decreases. C?
CR = CA/CL CR1 = CA / CL +2 == decreases? CFO = cash collected - accrued wages = net cash inflow of 8K = INCREASES C??
nevermind, you changed your answer faster than I could type up mine… if I remember correctly, this was from one of the CFAI exams
cpk, This is almost an exact question from June…you got the CFO part, but look at what current ratio is…when you collect A/R, it just moves from one asset account to another, specifically cash. So the numerator doesn’t change, but the denominator increases. It’s C. You could have everything is the ? the same, but ask about the cash ratio, and theb it would increase
liaaba – I just corrected and edited it…
C? CR drops because AR and Liabilities both drop. CFO increases because -AR and +Wages
you need to realize that A/R and cash are both current assets, the movement from A/R to cash is meaningless when looking for Current Ratio
C Cash moved to wages payable. A/R to cash has no impact. So CR go down. Increase in wages payable and decrease in A/R are both added to CFO.