## Answers

Part 1

Current ratiio = 1.3

Let the current assets be = $1,300

And current liabilities = $1,000

Let us also assume that a current liabilities of $100 is paid.

Current assets after payment of AP = current assets - current liabilities paid

= 1,300 - 100

= $1,200

Current liabilities after payment of AP = current liabilities - current liabilities paid

= 1,000 - 100

= $900

Current ratio (After payment of AP)

= Current assets after payment of AP/Current liabilities after payment of AP

= 1,200/900

= 1.33

Part 2

Current ratiio = 0.8

Let the current assets be = $800

And current liabilities = $1,000

Let us also assume that a current liabilities of $100 is paid.

Current assets after payment of AP = current assets - current liabilities paid

= 800 - 100

= $700

Current liabilities after payment of AP = current liabilities - current liabilities paid

= 1,000 - 100

= $900

Current ratio (After payment of AP)

= Current assets after payment of AP/Current liabilities after payment of AP

= 700/900

= 0.78

Preliminary trial balance current ratio of 1.3, a payoff AP would be | Increase | the current ratio. |

Preliminary trial balance current ratio of 0.8, a payoff AP would be | Decrease | the current ratio. |