a company with 70000 in current assets and 50000 in current

a company with $70000 in current assets and $50000 in current liabilities pays a $1000 current liability.as a result of this transaction the current ratio and working capital will

Solution

Currently:

current ratio=Current assets/Current liabilities

=(70000/50000)=1.4

Working capital=Current assets-Current liabilities

=(70,000-50,000)=20,000

The liability paid would reduce current liabiltiies and cash(current assets) by $1000

Hence new current assets=(70,000-1000)=$69000

Current liabilities=(50,000-1000)=49000

Hence Current ratio=(69000/49000)=1.41

WC=(69000-49000)=$20,000

Hence current ratio increases and working capital remains the same.